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‘Earnings recession’ dominates as Q1 reporting season kicks off

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  • Q1 earnings season unofficially kicks off on Friday
  • S&P 500 set for first earnings recession since 2020
  • Analysts expect annual earnings decline of -6.8% and sales growth of +1.8%.

Prepare for more volatility, the next major test for the stock market is upon us.

Wall Street’s first quarter earnings season unofficially begins Friday, April 14, when notable names like JPMorgan Chase (NYSE:), Citigroup (NYSE:), Wells Fargo (NYSE:), UnitedHealth (NYSE:) and Delta Air Lines (NYSE:) release their latest financial results.

Investors are bracing for what could be the worst reporting season in nearly three years, given the negative impact of several headline macroeconomic factors, such as rising interest rates, continued high inflation and slowing economic growth.

« Analysts and companies have been more pessimistic in their first-quarter earnings forecasts relative to historical averages, » FactSet’s John Butters wrote in a note.

After earnings per share fell 4.6% in the fourth quarter of 2022, earnings are expected to fall 6.8% in the first quarter of 2023 from the same period a year earlier, according to FactSet data.

S&P 500 Earnings Growth

If the 6.8% drop continues, it would be the biggest year-on-year earnings decline for the index since the second quarter of 2020.

It will also be the second consecutive quarter in which S&P 500 earnings have declined year-over-year, which meets the technical definition of an earnings recession.

Similarly, revenue forecasts for the first quarter of 2023 are also worrying, with sales growth expected at +1.8% compared to the same quarter of the previous year. If so, FactSet points out that this would be the lowest annualized revenue growth reported by the index since the third quarter of 2020.

S&P 500 Revenue Growth

Beyond the top and bottom numbers, investors will be very attentive to announcements regarding the outlook for the second half of the year, given the uncertain macroeconomic outlook, which has seen recession fears wane. intensify lately.

Other key issues will likely be raised, such as the health of the US consumer, future hiring plans and lingering supply chain concerns.

Personally, I think a higher percentage of companies will reduce their earnings and sales growth forecasts for the coming months, given the current economic climate.

Markets are entering the first quarter reporting season on solid footing amid growing expectations that the Federal Reserve will soon end its rate hike cycle and possibly cut interest rates. end of the year, in response to deteriorating economic conditions and signs of slowing inflation.

The tech-heavy index has been the best performer of the three major U.S. indexes so far in 2023, rising nearly 20% as investors reinvested in battered growth stocks of yesteryear.

Meanwhile, the benchmark S&P 500 and the benchmark are up 8.1% and 2.7% respectively year-to-date.

Next week: Tesla, Netflix earnings and housing data

Next week is expected to be busy again, with first quarter results kicking into high gear. Bank of America (NYSE:), Goldman Sachs (NYSE:), Johnson & Johnson (NYSE:) and Netflix (NASDAQ:) are scheduled for Tuesday, April 18.

Tesla (NASDAQ:), IBM (NYSE:) and Morgan Stanley (NYSE:) are due out on Wednesday, April 19. On Thursday, April 20, American Express (NYSE:) and AT&T (NYSE:) will release their results.

Procter & Gamble (NYSE:) will close the week, with its Q1 numbers due Friday, April 21.

You can delve into the earnings and expectation data of all these companies at InvestingPro.

Find All the Info You Need on InvestingPro

Find All the Info You Need on InvestingPro

Along with earnings, economic reports, which are expected to come in, include the New York Fed’s April manufacturing index on Monday and March housing starts on Tuesday.

The Philadelphia Fed’s manufacturing index for April and existing home sales for March will be released on Thursday, while the latest PMI indices for the manufacturing and services sectors will be released on Friday.

This data will be key in determining the Fed’s next action at its May meeting. On Friday morning, financial markets are pricing around a 70% chance of a 25 basis point rate hike at the May 2-3 FOMC meeting and a 30% chance of no action, according to the Investing.com tool.

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Disclosure : As of this writing I am long on the S&P 500 and Nasdaq 100 via the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust ETF (QQQ) .I am also long on theTechnology Select Sector SPDR ETF (XLK).

I regularly rebalance my portfolio of individual stocks and ETFs on the basis of a permanent assessment of the risks related to the macroeconomic environment and the financial situation of companies. The opinions expressed in this article are solely those of the author and should not be considered as investment advice.

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