Analysts are expecting the S&P 500 to produce earnings per share of $49.96, a drop of roughly 6% from the first quarter of 2022.
The weekslong festival of conference calls that is earnings season has its informal start Friday morning.Analysts are expecting the S&P 500 to produce earnings per share of $49.96, a drop of roughly 6% from the first quarter of 2022.If that comes to pass, it'll be the second straight decline in year-over-year earnings growth, the first such "earnings recession" since the COVID crisis.Shrinking earnings aren't a tragedy.
If we do have two straight quarters of shrinking profits, you'll hear a lot of chatter about how such an "earnings recession" bodes ill for the health of the U.S. economy. Ignore it. Analysts expect that corporate earnings will be strained not by a drop in top-line sales — which can be a decent measure of economic activity — but by shrinking margins.When inflation was ripping hard in 2021-22 companies were able to jack up prices with ease., despite public bellyaching from executives about the higher costs of virtually everything, including labor.As price increases have slowed, companies have had a harder time passing along cost increases to consumers.
But big surprise losses, or profits that trounce expectations, can set the background mood music for the markets. Also, comments by corporate executives in conference calls with analysts can gin up new worries for investors or ease concern about known issues.That's because their estimates are driven by conversations with corporate executives, who typically like to underpromise on earnings, and then over-deliver with a better-than-expected number, thus generating a satisfying pop in the share price.
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