Strategists across Wall Street are trying to answer: What's happening with earnings?
You'd think with all the bad news about inflation, all the talk about recession risks, and all the worries about the impacts of tighter monetary policy, the earnings outlook would have been deteriorating for months.
But it hasn't.
According to FactSet data through June 17, analysts estimated S&P 500 earnings to grow 10.4% year-over-year to $230.52 per share in 2022.
There's a lot to be said about this situation.
For starters, expectations for earnings growth are not uniform across industries.
For instance, the S&P 500 has significant exposure to the energy sector, and earnings for those stocks are expected to surge 118% year over year thanks to higher energy prices.
This speaks to the strength of consumer and business finances, which have enabled consumers and businesses to pay up for higher prices. This phenomenon has been occurring across all industries, as reflected by robust profit margins during this period of high inflation.
"Maybe inflation is why estimates are holding up so far," Jurrien Timmer, director of global macro at Fidelity, suggested in a tweet on Thursday.We'll find out soon enough.
The second quarter ends next week, which means companies will soon report quarterly financial results and offer guidance about the near-term future for business.
"All eyes on earnings," Fidelity's Timmer said. "While the valuation reset has been swift, we know that the fwd P/E is only as good as the E. With earnings estimates holding up (but with Q2 earnings season just a few weeks away), skepticism is mounting that earnings might be the next shoe to drop."
Will companies deliver another blowout quarter? Or will we find out that analysts have been too optimistic about the economy?
We'll see.
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