Q2 Earnings Season Will Be All About the Vibes

Second-quarter earnings season is just around the corner. A parade of earnings reports over the coming month will expose how companies have contended with soaring inflation, shifts in consumer spending, and a volatile supply environment. Management teams’ guidance and commentary on the outlook for the rest of 2022 may be even more impactful. It will be the first major test for the stock market and fragile investor sentiment in the second half of the year.

JPMorgan Chase, Delta Air Lines, PepsiCo, UnitedHealth Group, and Morgan Stanley will get the ball rolling next week, before earnings season really picks up over the following month.

Wall Street analysts’ consensus estimate is for S&P 500 revenue to come in 10.4% higher than in the same period last year, with 5.6% earnings growth, per I/B/E/S data from Refinitiv. Excluding the energy sector, which is booming thanks to sky-high oil and gas prices, sales are expected to decline 2.4% and earnings are expected to increase by 6.7%.

Indeed, looking more deeply, S&P 500 sales and earnings per share are seen hitting record highs in the second quarter, but growth on both lines is expected to slow and profit margins are expected to narrow.

That shift will be most evident in the mood on earnings calls. Updates to full-year guidance may skew negative, as CEOs and CFOs incorporate the potential risks and uncertainties in the second half of the year into their projections.

“I think you’re going to see an increasingly cautious tone from management teams,” says Richard Bernstein, CEO of Richard Bernstein Advisors, “We’re on the slow side of the profit cycle—we’re not talking about a profits recession, that’s probably the end of this year or into next year. But we’re clearly past the peak in profit growth.”

How things shake out this earnings season will flow into analysts’ models for the third and fourth quarters. For now, consensus estimates have earnings growth reaccelerating into the low double digits in both periods. A rocky second quarter or gloomy management predictions could mean downside to those forecasts. And that’s the last thing a market down 21% year to date needs.

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