Earnings Expected to Remain Generally Strong Through Year-End

Q2 earnings season is winding down, with only 23 of the S&P 500 companies scheduled to report this week.  Notable reports during the remainder of this week include Wynn Resorts (WYNN), Emerson Electric (EMR), and Norwegian Cruise Lines (NCLH) on Tuesday; Disney (DIS), and Fox Corp (FOX) on Wednesday; Cardinal Health (CAH) and Illumina (ILMN) on Thursday; and Broadridge Financial Solutions (BR) on Friday.

The bulk of Q2 earnings season is now over.  The peak earnings week was the last week of July, with reports that week from 173 of the S&P 500 companies.  Last week, 154 companies in the S&P 500 reported.

The nearly-completed Q2 earnings season was positive, with earnings growth for the S&P 500 companies expected at +9.2% y/y and revenue growth of +13.4%, according to surveys by Refinitiv.

Of the 432 companies in the S&P 500 that have reported, 77.5% reported above-consensus earnings, which is better than the long-term average of 66.1%, although mildly below the prior 4-quarter average of 80.67%, according to Refinitiv.

Of reporting S&P 500 companies, 69.9% reported above-consensus earnings, better than the long-term average of 61.8%, although below the 4-quarter average of 78.5%, according to Refinitiv.

Earnings growth is expected to remain generally strong in coming quarters, but will be undercut to some extent by higher interest rates and by upward pressure on corporate costs from inflation and higher wages.  The markets are also expecting weaker consumer spending as concern grows that U.S. GDP will continue to be weak after the technical recession in the first half of 2022 (GDP -1.6% q/q annualized in Q1-2022, and -0.9% in Q2-2022).

The consensus is for S&P 500 earnings growth in the second half of 2022 to slip a bit after the +9.2% growth rate seen in Q2.  Refinitiv reports market expectations for S&P 500 earnings growth of +6.6% y/y in Q3 and +7.0% in Q4.  For the calendar year, the consensus is for earnings growth in 2023 of +8.2%, slightly above the expected +8.1% growth rate for 2022.

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