US companies listed on the S&P 500 index are expected to report the first year-on-year profit decline since the early days of the COVID-19 pandemic. The companies are expected to post a 5.3% fall in earnings for the last quarter of 2022, marking the first decline in profits since the third quarter of 2020. The fall in earnings is due to various reasons, such as the Federal Reserve trying to slow down the economy by raising borrowing costs, high raw material prices, and persistent supply chain problems. Companies are reporting earnings that are only 0.6% above estimates, which is far below the five-year average of 8.6%.
According to JPMorgan analysts, stocks that are missing earnings per share expectations are being severely punished. Consumer discretionary stocks, consumer services, materials, and IT are the worst-performing sectors so far. In contrast, energy companies and industrial stocks have posted good numbers for the last quarter of 2022, with annual earnings per share growth of 58% and 37%, respectively. Some of the country’s largest banks have suffered, with Citigroup’s profits falling by over a fifth, Wells Fargo’s halving, and Goldman Sachs’ plunging by two-thirds. Big tech groups such as Apple, Amazon, and Alphabet have also seen their shares slip after reporting decelerating revenue growth and promising to reduce costs.
However, other tech companies, such as Tesla, have reported record quarterly revenues, with 37% growth from last year. Many investors believe that the gloomy earnings were already priced into the markets. Despite the S&P 500 losing a fifth of its value last year, it has recovered since the start of this year as investors bet that the Federal Reserve is nearing the end of its rate-rise cycle.
US companies listed on the S&P 500 index are expected to report the first year-on-year decline in profits since the early days of the COVID-19 pandemic due to various reasons, such as higher borrowing costs and persistent supply chain problems. While some sectors have performed better than others, investors are punishing companies that fall short of earnings expectations. However, many investors believe that the negative earnings were already priced into the market, leading to a recovery in the S&P 500 this year.