JPMorgan will report its first-quarter earnings on Wednesday to start the US season. Banks are set for a hit from a slowdown in corporate dealmaking, while energy is poised to rebound on the back of a surge in crude prices.
Wall Street trimmed its expectations heading into the quarter, but corporate America is expected to push through its “last big beat for a while,” said analysts at Bank of America.
Top and bottom lines
The S&P 500 is expected to report “blended” growth – a mix of actual and expected earnings per share – of 4.5 percent in the first quarter from a year ago, data provider FactSet shows.
Difficult year-ago comparisons and a number of macroeconomic disruptions, including inflation and supply chain bottlenecks, have been blamed for what could be the slowest EPS growth rate since the fourth quarter of 2020.
However, American blue-chip companies often exceed grim initial estimates and, based on the average beat rate over the past five years, FactSet expects earnings could rise 12.8 percent in the first three months of the year. That would mark the fifth consecutive quarter of earnings growth above 10 percent.
Revenues are projected to rise 10.7 percent, led by the energy, materials and real estate sectors.
Energy is expected to lead the S&P 500 sectors as surging oil prices boost revenue and earnings. The energy sector is expected to report earnings growth of 252.6 percent while revenue is forecast to rise nearly 45 percent compared to a year earlier, bolstered by a 33 percent rise in crude prices.
Oil prices have been volatile following the invasion of Ukraine on February 24. Brent crude, the international oil benchmark, surged to nearly $ 140 a barrel last month, only to give up some of those gains after the US said it would release emergency reserves. More Covid-19 lockdowns in China have raised the prospect of weakening oil demand.
The financial sector is expected to report an earnings decline of 25.7 percent, driven by banks, where analysts have penciled in a 36 percent drop in EPS.
Banks are forecast to report a slowdown in investment banking revenue, after stimulus measures and markets supported a rise in M&A activities and initial public offerings last year. John Butters at FactSet noted that banks are estimated to report higher provisions for loan losses, which will drag on growth.
Inflation is expected to be a headwind for companies in the first quarter of fiscal 2022. Of the 20 S&P 500 companies that have reported results, FactSet said nearly two-thirds had cited labor costs and shortages as weighing down on results. Pandemic-related expenses and supply chain disruptions were also mentioned as negative contributors.
However, companies continue to raise prices to offset inflationary cost pressures. Many large consumer groups have passed along higher input costs to consumers through price increases on their products in the fourth quarter of 2021.
Investors will tune into any management commentary about the impact of the war in Ukraine, which could fuel inflationary pressures. FactSet noted that 13 of the 20 S&P 500 companies that have reported results mentioned Ukraine, but only five said the war has hurt their business.