Market Pulse

Market Pulse

April 18, 2022

In focus

Earnings season kicks into high gear with over 60% of S&P 500 earnings set to be released over the next two weeks. Last week’s earnings announcements were dominated by the financials sector striking a more cautious tone relative to previous quarters. Their results highlighted concerns about lower investment banking activity, higher credit reserves, cost inflation, and lower mortgage activity. Additionally, forward guidance ratios through last Friday indicate more firms offering below-consensus earnings guidance than above-consensus guidance. This is consistent with our 2022 outlook for earnings growth to moderate from last year’s double digit pace to single digit growth and a reduction in the number of upside earnings surprises.

Some common themes for Q1 earnings may include –

  • Large cap multi-nationals could see a modest headwind from the strength of the U.S. dollar, which has appreciated 4.5% year to date
  • Profit margins are expected to remain elevated; however, inflation is expected to trim margins from the all-time highs seen in 2021. Only the energy and utility sectors are reflecting a year-to-date uptick in margin growth expectations.
  • Geopolitical uncertainties from the Ukraine war and the China pandemic lockdowns may be reflected through higher inflation, supply chain disruptions, and adverse effects for firms with elevated European revenue exposure.

Housing data dominates this week’s economic releases, but the Federal Reserve’s (Fed) Beige Book release on Wednesday will provide us with a “boots on the ground” view of economic activity across different U.S. regions.

A look back

  • Global stocks fell -1.7% last week with U.S. equities a laggard but relative strength in international developed markets. U.S. dollar strength has weighed on international developed markets year to date.
  • Last week, the 2/10-year U.S. yield curve steepened by 20 basis points (0.20%). 10-year Treasury yields are trading at their highest levels since late 2018.
  • Strong inflation data continued last week, but core prices showed early signs of cooling. Consensus GDP growth expectations have fallen recently, but our view is calls for a recession are premature. 

A look ahead

  • Earnings season accelerates this week with 16% of the S&P 500 reporting with year-over-year earnings growth expected to moderate to 5.1%. Profit margins will be in focus for investors.
  • Housing data will be in the spotlight in the week ahead. Participants will look for any impact from rising mortgage rates on home sales and building activity.
  • Economic releases: Building Permits, Housing Starts, Existing Home Sales, Leading Index, S&P Global U.S. Manufacturing & Services.

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