• Latest
  • Trending
  • All
  • Finance
  • Politics
  • US News
  • Political Humor
  • Tech

STRONG EARNINGS MOMENTUM TO START 2022

February 24, 2022
WATCH Steve Jobs becoming Steve Jobs in this 1981 interview

WATCH Steve Jobs becoming Steve Jobs in this 1981 interview

May 9, 2022

The Catalysts Of Africa’s Sustainable Development Trajectory

April 16, 2022
Why Should You Develop Offline Mobile Applications?

Why Should You Develop Offline Mobile Applications?

April 11, 2022
Airhouse closed an $11 Million Series A to power modern eCommerce operations

Airhouse closed an $11 Million Series A to power modern eCommerce operations

March 29, 2022
Houthi Leader Proclaims Support For Russia in Anti-Semitic Comment

Houthi Leader Proclaims Support For Russia in Anti-Semitic Comment

March 19, 2022
Real estate investment returns by property sector from 2012-2021 ranked

Real estate investment returns by property sector from 2012-2021 ranked

March 11, 2022
Photo-Essay: The Faces of Lake Buhi In The Philippines

Photo-Essay: The Faces of Lake Buhi In The Philippines

March 9, 2022
Op-ed: Russia’s invasion of Ukraine and The End of Peace,

Op-ed: Russia’s invasion of Ukraine and The End of Peace,

March 8, 2022
Despite GOP Efforts, Evan McMullin Will Appear on Utah Ballot

Despite GOP Efforts, Evan McMullin Will Appear on Utah Ballot

March 5, 2022
American Interfaith Leader Condemns Terror Attack in Peshawar

American Interfaith Leader Condemns Terror Attack in Peshawar

March 8, 2022
UAE First Arab Country To Provide Aid Ukraine As Conflict Rages

UAE First Arab Country To Provide Aid Ukraine As Conflict Rages

March 2, 2022
Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

March 2, 2022
  • About
Thursday, May 19, 2022
  • Login
  • Register
Inside The Nation
  • Daily Buzz
    Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

    Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

    What You Need To Know About Appointees To U.S. Holocaust Memorial Council

    Biden’s Speech At Democracy Summit Calls For Action

    Op-ed: Give Joe Biden a Break

    Analysis: What Is Ahead For U.S. Markets In 2022?

    White House Releases Statement On The Occasion Of Orthodox Christmas

    Antonio Brown explains his Sunday football outburst

  • US News
    • All
    • EDUCATION
    An employee of Toyota in West Virginia. Photo via Toyota

    Toyota Invests in Appalachia EV Production

    Trump’s Other Muslim Ban

    What’s A College Degree Worth Anyway?

    MLB player banned from visiting family

    Biden’s Speech At Democracy Summit Calls For Action

    Op-ed: Biden’s Way Foward

    Antonio Brown explains his Sunday football outburst

  • Politics
    • All
    • international News

    The Catalysts Of Africa’s Sustainable Development Trajectory

    Houthi Leader Proclaims Support For Russia in Anti-Semitic Comment

    Houthi Leader Proclaims Support For Russia in Anti-Semitic Comment

    Photo-Essay: The Faces of Lake Buhi In The Philippines

    Photo-Essay: The Faces of Lake Buhi In The Philippines

    Op-ed: Russia’s invasion of Ukraine and The End of Peace,

    Op-ed: Russia’s invasion of Ukraine and The End of Peace,

    Despite GOP Efforts, Evan McMullin Will Appear on Utah Ballot

    Despite GOP Efforts, Evan McMullin Will Appear on Utah Ballot

    American Interfaith Leader Condemns Terror Attack in Peshawar

    American Interfaith Leader Condemns Terror Attack in Peshawar

    UAE First Arab Country To Provide Aid Ukraine As Conflict Rages

    UAE First Arab Country To Provide Aid Ukraine As Conflict Rages

    Putin Invades Ukraine. How Far Will He Go?

    Putin Invades Ukraine. How Far Will He Go?

    Foreign and Commonwealth Office - Freedom of religion or belief

    “Mulilateralism Lies On Its Deathbed” Says Kenya Diplomat in Powerful Ukraine speech

    The Biden-⁠Harris Plan to Revitalize American Manufacturing and Supply Chains

    The Biden-⁠Harris Plan to Revitalize American Manufacturing and Supply Chains

    • Political Humor
      UAE First Arab Country To Provide Aid Ukraine As Conflict Rages

      UAE First Arab Country To Provide Aid Ukraine As Conflict Rages

      Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

      Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

      Foreign and Commonwealth Office - Freedom of religion or belief

      “Mulilateralism Lies On Its Deathbed” Says Kenya Diplomat in Powerful Ukraine speech

      DON’T EXPECT THE FED TO END THIS BULL ANYTIME SOON

      Pugilist Kieth Thurman Speaks On The Importance of Black History Month

      Pugilist Kieth Thurman Speaks On The Importance of Black History Month

      Analysis: What Is Ahead For U.S. Markets In 2022?

      White House Releases Statement On The Occasion Of Orthodox Christmas

      Oped: Dictatorship or Democracy? The Case of Tunisia

      Op-ed: Tunisian fledgling path to democracy or political stalemate?

      Antonio Brown explains his Sunday football outburst

  • Business
    • All
    • Finance
    • Marketing
    • Tech
    WATCH Steve Jobs becoming Steve Jobs in this 1981 interview

    WATCH Steve Jobs becoming Steve Jobs in this 1981 interview

    The Catalysts Of Africa’s Sustainable Development Trajectory

    Why Should You Develop Offline Mobile Applications?

    Why Should You Develop Offline Mobile Applications?

    Airhouse closed an $11 Million Series A to power modern eCommerce operations

    Airhouse closed an $11 Million Series A to power modern eCommerce operations

    Real estate investment returns by property sector from 2012-2021 ranked

    Real estate investment returns by property sector from 2012-2021 ranked

    Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

    Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

    The Biden-⁠Harris Plan to Revitalize American Manufacturing and Supply Chains

    The Biden-⁠Harris Plan to Revitalize American Manufacturing and Supply Chains

    STRONG EARNINGS MOMENTUM TO START 2022

    U.S. MARKETS HAVE BEEN SKIING UPHILL

  • Entertainment

    Antonio Brown explains his Sunday football outburst

    Travel: Hidden Gems Near Tokyo For Day-Trippers

    Photo by Erik Drost of Enes Kanter via Wikipedia

    Shaquille O’Neal Criticizes Enes Kanter Freedom

    Photo by Erik Drost of Enes Kanter via Wikipedia

    NBA Star Enes Kanter Adds “Freedom” To His Name

    In a punk ‘Cruella,’ dogs play second fiddle to the designs

    In a punk ‘Cruella,’ dogs play second fiddle to the designs

    HBO Max welcomes back the cast of “Friends,” for a reunion

    HBO Max welcomes back the cast of “Friends,” for a reunion

    Florida takes the step to get into the Sports Gaming Business

    Florida takes the step to get into the Sports Gaming Business

    The top 50 grossing blockbuster movies in the last 30 years

    The top 50 grossing blockbuster movies in the last 30 years

    Genevieve O’Reilly talks about her new thriller The Dry opening today

    Genevieve O’Reilly talks about her new thriller The Dry opening today

    We talk with Jed Mercurio the creative force behind the BBC hit crime drama Line Duty that drops on BritBox this week

    We talk with Jed Mercurio the creative force behind the BBC hit crime drama Line Duty that drops on BritBox this week

  • Environment
    UAE First Arab Country To Provide Aid Ukraine As Conflict Rages

    UAE First Arab Country To Provide Aid Ukraine As Conflict Rages

    Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

    Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

    Foreign and Commonwealth Office - Freedom of religion or belief

    “Mulilateralism Lies On Its Deathbed” Says Kenya Diplomat in Powerful Ukraine speech

    DON’T EXPECT THE FED TO END THIS BULL ANYTIME SOON

    Pugilist Kieth Thurman Speaks On The Importance of Black History Month

    Pugilist Kieth Thurman Speaks On The Importance of Black History Month

    Analysis: What Is Ahead For U.S. Markets In 2022?

    White House Releases Statement On The Occasion Of Orthodox Christmas

    Oped: Dictatorship or Democracy? The Case of Tunisia

    Op-ed: Tunisian fledgling path to democracy or political stalemate?

    Antonio Brown explains his Sunday football outburst

  • Health
    UAE First Arab Country To Provide Aid Ukraine As Conflict Rages

    UAE First Arab Country To Provide Aid Ukraine As Conflict Rages

    Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

    Hershey’s Creates Chocolate Bar to Celebrate All Women and Girls

    Foreign and Commonwealth Office - Freedom of religion or belief

    “Mulilateralism Lies On Its Deathbed” Says Kenya Diplomat in Powerful Ukraine speech

    DON’T EXPECT THE FED TO END THIS BULL ANYTIME SOON

    Pugilist Kieth Thurman Speaks On The Importance of Black History Month

    Pugilist Kieth Thurman Speaks On The Importance of Black History Month

    Analysis: What Is Ahead For U.S. Markets In 2022?

    White House Releases Statement On The Occasion Of Orthodox Christmas

    Oped: Dictatorship or Democracy? The Case of Tunisia

    Op-ed: Tunisian fledgling path to democracy or political stalemate?

    Antonio Brown explains his Sunday football outburst

No Result
View All Result
Inside The Nation
No Result
View All Result
Home Business

STRONG EARNINGS MOMENTUM TO START 2022

by LPL Financial
February 24, 2022
in Business, Finance
0
492
SHARES
1.4k
VIEWS
Share on FacebookShare on Twitter

Corporate America has capped off an outstanding 2021 with an excellent fourth quarter earnings season so far. Entering 2021, the consensus estimate for S&P 500 Index earnings per share (EPS) was less than $170. Now with fourth quarter results mostly in the books, that number is 22% higher at $208. Here we recap another solid fourth quarter earnings season and discuss what the results could mean for earnings growth and stock market performance in 2022.

DELAYED INVESTOR SHIFT FROM MACRO TO MICRO

In our earnings preview on January 10, we noted that we welcomed a shift from the macro to the micro. Well, given the path of inflation, the resulting dramatic shift in Federal Reserve (Fed) rate hike expectations, and the escalating Russia-Ukraine conflict, that shift hasn’t really happened. However, when we turn our attention away from macro headlines to corporate America, we find that companies have again showcased their ability to effectively manage through the pandemic’s challenges, notably supply chain disruptions and labor and materials shortages that have pushed costs higher.

GREAT NUMBERS

The numbers this earnings season have been great even without considering that the bar has been raised consistently throughout the pandemic. S&P 500 earnings per share are tracking to a 31% year-over-year increase, shown in Figure 1, roughly 10 percentage points above the consensus estimate when earnings season began. That upside will likely fall a bit short of the 12 points of upside in the third quarter, but considering the long-term average upside is about five percentage points, and the fourth quarter was wrought with pandemic-related challenges, we’re quite impressed. In fact, in our earnings preview last month, we wrote, “Earnings growth approaching 30%, though slower than the third quarter’s near-40% clip, would be impressive given the challenging operating environment.”

HOW HAVE THEY DONE IT?

Though about 75 S&P 500 companies have yet to report, companies have generally beaten estimates soundly again with a combination of surprising revenue strength and resilient profit margins. Fourth quarter 2021 revenue came in about three percentage points above consensus estimates at more than 15.5%, bolstered by the strong economic growth in the quarter (6.9% real gross domestic product growth annualized), fueled by inventory restocking, as well as price increases. That 15.5% revenue growth is higher than any quarter during the previous economic expansion (2009-2020), but was bested by the second and third quarters of 2021 that saw growth inflated by base effects coming off 2020 lockdowns.

This solid revenue upside, which is about twice the long-term average “beat”, came despite supply chain disruptions limiting what companies had available on the shelves to sell, labor shortages that cost companies sales they otherwise would have booked, and the COVID-19 Omicron wave in late November through December that constrained economic activity.

The other part of the earnings story is the impressive profit margins. Due to rising costs of labor, materials, energy, and transportation, we had anticipated some meaningful profit margin compression in the quarter. It looks like we’ll end up with a slight downtick in margins quarter over quarter when all the results are in, but it won’t be as big of a drop as we had feared.

That slight potential dip from the third quarter to the fourth doesn’t take away from the fact that margins last year were tremendous [Figure 2]. Companies are enjoying pricing power, which is helping them pass along higher costs, notably wages, and largely preserve those high margins that are well above pre-pandemic levels.

CARRYING EARNINGS MOMENTUM INTO 2022

We remain concerned about higher wages and other inflation pressures crimping margins in 2022. Supply chain challenges will likely linger through the first half of the year based on commentary from a number of companies in recent weeks. Still, the impressive profitability displayed in the fourth quarter puts corporate America in a strong position to potentially deliver higher earnings in 2022 than we previously anticipated.

On the revenue side, remember higher prices translate into more sales, as long as demand remains strong enough to pay those higher prices. Pricing power helped companies in the fourth quarter and should continue to help in 2022. If the U.S. economy grows near our 4% forecast in real terms this year, adjusted for inflation, and consumer inflation adds another five points (consensus forecast of economists according to Bloomberg), then we believe 9% revenue growth from S&P 500 companies is a reasonable expectation. For perspective, the best revenue growth years since the 2008-2009 financial crisis were 2011 (+12.5%) and 2021 (+16.9%).

That means our 6-7% earnings growth forecast for 2022 could be attainable even with modest margin compression (with some help from share repurchases reducing the denominator in the earnings-per-share calculation). For now, we’ll maintain our forecast of $220 in S&P 500 EPS in 2022, but that number could be too low based on the earnings momentum evident this earnings season. The consensus estimate for 2022 S&P 500 EPS rose 0.5% during earnings season, much better than the average 2-3% reduction observed historically.

MACRO BACKDROP STILL SUPPORTS 5,000 ON THE S&P 500 AT YEAR END

Stocks have gotten off to a rough start this year. The adjustments to higher inflation and more Fed rate hikes have been difficult, while the Russia-Ukraine situation has added to market anxiety and volatility. While it may take more time for the market to shift its focus toward solid company fundamentals and get more comfortable with the inflation outlook, we expect stocks to recover early-year losses and rally back to new highs through year-end as that transition takes place.

Mid-cycle years such as 2022 tend to see double-digit gains for stocks, even more optimistic than the high-single-digit gain we forecasted in our Outlook 2022: Passing the Baton. History shows that stocks tend to do well during the year after initial Fed rate hikes and that volatility related to geopolitical events has frequently been short-lived. The additional reopening of the economy that lies ahead makes solid growth in the U.S. economy and corporate profits, in our opinion, more likely this year and should help ease inflation pressures, solidifying a favorable backdrop for attractive stock market returns in 2022.

The recent move higher in interest rates doesn’t change the calculus much for us in terms of stocks versus bonds. We continue to recommend an overweight allocation to equities and an underweight fixed income allocation relative to investors’ targets, as appropriate

Jeff Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Ryan Detrick, CMT, Chief Market Strategist, LPL Financial

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

All index data from FactSet.

 

This research material has been prepared by LPL Financial LLC.

Comments
LPL Financial
+ posts
  • LPL Financial
    #molongui-disabled-link
    Analysis: What Is Ahead For U.S. Markets In 2022?
  • LPL Financial
    #molongui-disabled-link
    DON’T EXPECT THE FED TO END THIS BULL ANYTIME SOON
  • LPL Financial
    #molongui-disabled-link
    U.S. MARKETS HAVE BEEN SKIING UPHILL
Share197Tweet123Share34SharePin44
LPL Financial

LPL Financial

    Subscribe To Our Newsletter

    Join our mailing list to receive the latest news and updates from the ITN Network.




    We respect your privacy. Please read our Privacy Policy. You can opt-out of emails at anytime.

    Plugin Install : Widget Tab Post needs JNews - View Counter to be installed
    • Trending
    • Comments
    • Latest
    Hitman shoots husband and kills son of Judge overseeing Deutsche Bank Epstein trial

    Hitman shoots husband and kills son of Judge overseeing Deutsche Bank Epstein trial

    July 20, 2020
    Tanzanian President Samia’s trip to Europe Is a Strategic Move

    Tanzanian President Samia’s trip to Europe Is a Strategic Move

    February 18, 2022
    Op-Ed: Biden Administration Must Focus On Development, Not Regime Change With Ethiopia

    Op-Ed: Biden Administration Must Focus On Development, Not Regime Change With Ethiopia

    December 13, 2021
    The Role of AI in Human Resources

    The Role of AI in Human Resources

    1
    Points of View: Right Wing versus Left Wing One Century of the Bolshevik Revolution

    Points of View: Right Wing versus Left Wing One Century of the Bolshevik Revolution

    0
    Points of View: Right versus Left Manafort, Business Partner Indicted on Conspiracy Charges

    Points of View: Right versus Left Manafort, Business Partner Indicted on Conspiracy Charges

    0
    WATCH Steve Jobs becoming Steve Jobs in this 1981 interview

    WATCH Steve Jobs becoming Steve Jobs in this 1981 interview

    May 9, 2022

    The Catalysts Of Africa’s Sustainable Development Trajectory

    April 16, 2022
    Why Should You Develop Offline Mobile Applications?

    Why Should You Develop Offline Mobile Applications?

    April 11, 2022
    Inside The Nation

    Copyright © 2020 Inside The Nation.

    Navigate Site

    • About

    Follow Us

    No Result
    View All Result
    • Daily Buzz
    • US News
    • Politics
      • Political Humor
    • Business
    • Entertainment
    • Environment
    • Health

    Copyright © 2020 Inside The Nation.

    Welcome Back!

    Login to your account below

    Forgotten Password? Sign Up

    Create New Account!

    OR

    Fill the forms below to register

    All fields are required. Log In

    Retrieve your password

    Please enter your username or email address to reset your password.

    Log In

    Sign up to best Trending News, Politics, Finance in United States.

    Get special offers that you won't ever find on our blog·

    Invalid email address
    We promise not to spam you. You can unsubscribe at any time
    Thanks for subscribing!