US Stocks continue to slide downwards. Wall Street has opened lower keeping the earnings season in view and the upcoming inflation data. Dow 30, S&P 500 and Nasdaq are trading in green on Tuesday morning ( July 12) as markets look forward to the upcoming earnings season.
Stock market performance over the long term hinges largely on the actual corporate earnings. US second-quarter earnings season for April, May and June starts soon with some major banks announcing their results. While the meltdown of stock market since January 2022 is largely on account of rising yields, the actual impact of higher inflation, demand and cost pressure will get reflected in the company’s earnings.
The S&P 500 is down by over 19 per cent in 2022 and is stuck around in the bear market territory. As the results start flowing in, there will be downgrades and upgrades among the companies.
As per FactSet, S&P 500 is likely to report earnings growth between 9% and 12% for Q2 2022. Over the past five years, actual earnings reported by S&P 500 companies have exceeded estimated earnings by 8.8% on average. During this same period, 77% of companies in the S&P 500 have reported actual EPS above the mean EPS estimate on average. As a result, from the end of the quarter through the end of the earnings season, the earnings growth rate has increased by 8.1 percentage points on average (over the past five years) due to the number and magnitude of positive earnings surprises.
Of the 18 S&P 500 companies that have reported actual earnings for Q2 2022 to date, 72% have reported actual EPS above the mean EPS estimate. In aggregate, actual earnings reported by these 18 companies have exceeded estimated earnings by 3.5%. Therefore, at this very early stage of the Q2 earnings season, the number of positive earnings surprises is closer to the 10-year average than the five-year average, while the magnitude of the positive surprises is below both the five-year average and the 10-year average.