Charting the Market: Earnings Season Preview


Head of SPDR Americas Research

  • S&P 500® firms are projected to post earnings-per-share (EPS) growth of 4.5% for Q1 2022, the lowest rate since Q4 2020
  • The Q1 2022 growth rate is now lower than it was at the start of the year, setting up for a potential underpromise, overdeliver scenario
  • Don’t be pessimistic about the single-digit projected growth rate. If the typical surprises occur, the quarter could end with a double-digit growth rate

The market has been existing in a fundamental vacuum lately. Shortly after the Q4 2021 earnings season reached a fever pitch, Russia invaded Ukraine and hawkish Federal Reserve rhetoric grew louder.

As first quarter results are released, with more than 68% of the S&P 500 Index market cap reporting by the end of the month, investors will get an in-depth look into how firms have handled the spillover effects of macro risks: war, inflation, a stronger dollar, higher rates, and higher commodity prices.

Coming into quarter end, however, analysts seem to have lost confidence in the potential for strong first quarter results. In this Charting the Market, I explore why this quarter may end up being better than expected, as well as what sectors rank highly on a quantitative earnings sentiment screen.

Expectations Revised Downward, But Room for Improvement

With a war, higher rates, and inflation creating elevated levels of macro uncertainty, analysts have been revising downward Q1 2022 figures. At the start of the year, projected growth for Q1 was 5.7%.1 Now, projected growth is 4.5%, the lowest year-over-year growth rate since Q4 2020.2

This is still higher than all of 2019, though. And it’s worth keeping in mind that some of the low, single-digit growth rates are from hard year-over-year comparisons given the sizeable increase in 2021 over 2020.

Year-over-Year EPS Growth (%)

Year-over-Year EPS Growth (%)

Underpromise, Overdeliver Earnings Season Scenario?

The downside analyst revisions also coincide with a higher-than-normal rate of firm negative guidance, as roughly 70% of the firms that have issued guidance for Q1 2022 have expressed negative views, below the typical 60% negative guidance view rate.3

In my view, this sets up a potential underpromise, overdeliver scenario, with firms projecting a lower bar that may be easier for them to surpass. And, on average, firms do beat the bar set by the market. Historically, 77% of firms report earnings above the average analyst estimate.4

As a result, final quarterly numbers are typically higher than forecasted. In fact, over the last ten years, the average increase in actual quarterly earnings reports above what was estimated is 6.5%.5

As shown below, more recent average increases are higher (5 years, 8.9%6), given the boost from quarterly earnings results during the pandemic that coincided with significant beats due to an elevated level of analyst dispersion and uncertainty. This is also evident as the median (6.1%) is lower than the average.

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1 FactSet, as of April 11, 2022, based on the S&P 500 Index.
2 FactSet, as of April 11, 2022, based on the S&P 500 Index.
3 FactSet, as of April 11, 2022, based on the S&P 500 Index.
4 FactSet, as of April 11, 2022, based on the S&P 500 Index.
5 FactSet, as of April 11, 2022, based on the S&P 500 Index.
6 FactSet, as of April 11, 2022, based on the S&P 500 Index.
7 Bloomberg Finance, L.P., as of April 11, 2022, based on the S&P 500 Index.
8 FactSet, as of April 11, 2022, based on the S&P Mid Cap 400 Index.
9 FactSet, as of April 11, 2022, based on the S&P Small Cap 600 Index.
10 FactSet, as of April 11, 2022, based on the S&P Mid Cap 400 Index.

Originally Posted April 14, 2022 – Charting the Market: Earnings Season Preview

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