RUSS MOULD
AJ Bell Investment Director
What is top of the agenda in the latest US earnings season? As corporate reports start to stream in it's worth examining the wider context
T
he US second-quarter earnings season is about to reach full throttle. According to research from S&P Global’s Howard Silverblatt, at the time of wrting 31 members of the S&P 500 index have already reported earnings. Of those, 22 beat earnings expectations, while just nine missed and 21 did better at the top line as well as the bottom one. This might help to explain why the S&P 500 has rallied by almost 10% from its June low, especially as news of inflation, higher interest rates, war in Ukraine, lockdowns in China and supply chain disruption hardly count as ‘news’ anymore. Companies are pretty canny when it comes to managing expectations – Silverblatt’s research reveals that an average of 73% of the S&P 500’s members have beaten quarterly earnings forecasts since Q2 2013. Set a low enough bar and anything is possible. The attempted rally may therefore have bigger challenges to come, especially if the surging greenback crimps US exports and decreases the value of overseas sales once they are translated back into dollars (although there could be a benefit in the form of lowered import costs, too). This is because analysts are still forecasting increases for aggregate S&P 500 earnings in 2022 and 2023, despite economists’ gathering conviction that the US is heading into a recession. SLOWING DOWN It seems logical to assume that either the economists or the equity analysts are wrong. Consensus estimates are looking for earnings per share (EPS) from the S&P 500 to reach $223 in 2022 and $246 in 2023, compared to $208 in 2021. Investors could be forgiven for thinking that might be a stretch given the current economic
24
| SHARES | 28 July 2022
backdrop, even allowing for the relatively soft base for comparison offered by last year, which was still suffering from a large bout of Covid-19. Analysts are looking for healthy earnings growth from the S&P 500
Source: S&P Global, consensus forecasts
