Markets witnessed broad selling in Monday’s session to kick-off another corporate earnings season. Much anticipation is circulating this round of earnings reports, as they are expected to provide indication of how higher prices and weakening consumer sentiment have weighed on companies’ bottom lines. With rising interest rates and the overhang of recession risk, much of the Street believes markets are now poised for a volatile earnings period ahead.
UBS trimmed its price target for the S&P 500 to start the week, and expects earnings estimates could decline further from here, with major indexes now about 19% off highs. The firm trimmed its earnings forecast based on a slowing GDP growth rate and rising costs, although it noted a benefit from revenue and rising margins in the near-term from short-lived growth.
UBS cut its EPS forecast to $234 in 2022 and $247 in 2023, which is revised down from $235.50 and $250, respectively. According to Factset, the consensus earnings growth rate for 2Q for the S&P 500 is 4.3%. If the quarter’s growth rate ended up coming in-line at 4.3%, this would mark the lowest earnings growth rate from the index since 4Q20. It also signifies a meaningful downward revision from back in March, when the estimated earnings growth stood at 5.9%.
Per Factset, this is a result of a 21% reduction in earnings expectations for consumer discretionary stocks, while energy on the other hand, saw a nice 42% pop in earnings estimates since the end of 1Q. This reflects some of the major themes of the prior earnings period, which depicted inventory constraints, higher prices, and a shift in consumer demand crippling some major retailers – while energy remained the S&P 500’s brightest spot.
PepsiCo is one of the first major names with earnings this morning, followed by Delta Airlines and Fastenal scheduled for Wednesday morning. The heavy weight U.S. banks are set to report on Thursday - with JPMorgan Chase, Morgan Stanley and First Republic Bank kicking things off before the opening bell. On Friday, Citigroup, Blackrock, PNC, State Street, Wells Fargo, and U.S.
Bancorp are expected to report to close out the week, as well as UnitedHealth.
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