November 02, 2022
Q2 2022 has come to a close, which means that earnings reports are on the horizon. Soon, thousands of companies will report their earnings each week — and as always, big banks like JPMorgan Chase, Wells Fargo, and Bank of America will lead the charge. They will offer great insight into the health of the financial sector.
They’ll also set the mood for the next few weeks of earnings reports, which are expected to show slowing earnings growth. According to FactSet, which compiles reports specifically about the S&P 500 and its earnings, the earnings growth in America’s most important index is expected to come in at 4.1%.
That figure is below the expected growth rate for the quarter — that was expected to be 5.9% for the quarter — in part because “71 S&P 500 companies have issued negative EPS guidance” for the quarter; only 32 reported positive guidance.
However, FactSet’s July 1 report on S&P 500 earnings shows that 15 out of 18 companies which have reported so far have brought in a positive revenue surprise; 13 of those 18 have issued positive surprises on EPS (earnings per share.)
It’s too early to say if the success of those 18 companies will be applicable to the more than 500 constituents of the S&P 500, but one thing is for sure: large American companies might be holding up amid concerns about recession.
The reality might be much different for small businesses and mid-size, growth-oriented firms. In Q1 2022, U.S. GDP actually fell — and it might be looking at a repeat once the dust settles on Q2, which would confirm what many analysts have warned: that the recession is already here.
In the grand scheme of things, though, the recession being here would hardly be a surprise to investors which have been cooked alive in the market this year. The four major indexes are all down more than -20% YTD and have fallen into bear market territory. Tech — which carries the greatest weight in almost all of the indexes, and arguably gets the most chatter and headlines — has seen more than 48,000 layoffs just since the start of the year according to layoffs.fyi.
But if we’re truly in a recession, it’s an awfully weird one: asset prices look anemic, the U.S. dollar looks strong, companies are still posting higher revenue and earnings figures QoQ, and payrolls are rising rapidly. None of that really makes sense. Maybe earnings season will offer an augury of what’s to come.