S&P 500 earnings likely to be lower in fourth quarter
On December 1, 2021, traders work on the New York Stock Exchange NYSE in New York City, U.S. REUTERS Brendan McDermid File Photo
NEW YORK, Jan 12 Reuters -- U.S. companies will post results in the coming weeks on the final quarter of 2021, as investors worry about inflation's impact on earnings and pressure on the Federal Reserve to speed up the timeline for kicking off interest rate hikes.
The concerns that have been linked to the fast-spreading COVID 19 Omicron variant have driven a recent market sell-off, led by Nasdaq and shares of technology and other big growth companies that have benefited from low interest rates.
Profit growth for S&P 500 companies is expected to be lower in the fourth quarter than it was in the first three quarters of 2021, but still strong at 22.4%, according to IBES data from Refinitiv.
In the early stages of the epidemic, huge profit gains were fueled by a rebound from the economic downturn in the early stages of the epidemic.
Bill Northey, senior investment director at U.S. Bank Wealth Management, said that it's nearing the end of the very easy comparisons that we had in 2020. The easy comparisons will begin to wane as we move into 2022. The S&P 500 SPX, with the S&P 500 SPX gaining 26.9% for the year last year, was a strong market performance, so corporate outlooks for 2022 will be key to the earnings period, according to Northey.
Earnings growth for all of 2021 is estimated to be about 50% compared to 8.6% for 2022, while the forward price-to- earnings ratio for the S&P 500 was last at 21.7, compared to its long-term average of 15.5, according to Refinitiv DataStream.
Bank shares have rallied with the U.S. Treasury yields due to JPMorgan Chase JPM.N due to report Friday and kick off the reporting period with Citigroup C.N and Wells Fargo Heading into earnings season.
New lending and rising Treasury yields are what analysts expect from big U.S. banks to show an increase in core revenues in the fourth quarter. The S&P 500 bank index SPXBK and the financial index SPSY hit record highs last week. Minutes released from the December meeting of the Fed showed that policymakers want to tighten policy even faster. There are signs supply chain bottlenecks may be easing, which is one of the main concerns of investors. The U.S. economic reports have offered some hope on that front.
The supply logjam in the sector is starting to break up, according to a report on U.S. services industry activity last week.
Transportation snags at ports and other areas have resulted in bigger expenses for companies and higher costs for consumers.
Bottlenecks have hit retailers especially hard, and investors will watch for how they affect holiday sales.
S&P 500 companies have been maintaining record profit margins, with many able to pass on higher expenses to customers, but that may not continue.
Howard Silverblatt, senior index analyst at S&P Dow Jones Indices in New York, said the margins won't be a record this quarter but still high.
The stock market has seen investors move away from technology-heavy growth shares and into more value-oriented stocks that tend to do better in a higher interest-rate environment. Some investors say technology company results could be much better than Wall Street expects.
The results from big tech and other mega-cap companies start next week, with Netflix due to report on January 20.
Recent results from some chip companies including Micron Technology MU.O were upbeat, said Daniel Morgan, portfolio manager at Synovus Trust in Atlanta, Georgia. He said that it gives me confidence that we should get good reports from the chips sector. According to Refinitiv data, the energy, materials and industrials sectors are expected to post the biggest year-over-year earnings gains in the fourth quarter.
The S&P 500 energy index SPNY has gone up by 14% since Dec. 31, after a whopping 48% gain in 2021, with the strongest S&P 500 sector performer in early 2022, with the S&P 500 energy index up more than 14% since December 31, supported by tight supply.
Results from ExxonMobil XOM.N and Chevron CVX.N are due in a couple of weeks.
Revenue growth for the fourth quarter of 2021 is expected to be 12.1% for all 11 of the S&P 500 sectors, while revenue growth is projected to be 12.1% in the fourth quarter of 2021. Refinitiv data shows that the growth level would be lower than in recent quarters.