Something extraordinary happened during the first three months of the 2022.
Analysts revised up their forecasts for S&P 500 earnings.
According to FactSet, analysts expect the S&P 500 to earn $228.43 per share. This is 2% higher than the $223.43 expected as of December 31, 2021.
Some of this can be explained by analysts fine-tuning their financial models, which initially may have relied more heavily on guesswork. Nevertheless, the revisions are pretty surprising considering risks that emerged during the period.
When a new headwind emerges, I know I usually think: "How will this hurt the earnings of the companies I'm invested in?"
But I think we should be asking a different question.
The right question is: "Can the companies I'm invested in deliver on earnings?"
It's similar to the question above, but it broadens the scope of the inquiry to consider more than just the negative impacts of just the unfavorable developments.
Specifically, this question forces you to consider the possibility that earnings may even go unaffected. If there's one thing we all should've learned over the past two years, it's that consumers and businesses are incredibly resilient and remarkably adaptable.
Despite rising costs, businesses have demonstrated an ability to maintain and even increase profitability.
They've been raising prices, cutting costs, leveraging their operating structures, and investing in productivity-enhancing technology.
The bottom line: Bad news will emerge, but you shouldn't expect businesses to just take an "L". They'll make changes to keep profitability up while being mindful of the resilience of their customers and the support of their government.
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