U.S. Earnings Problems to Persist Past Q4
Since a tight labor market is anticipated to have an influence on margins and negatively affect results in the first half of 2023, the dismal fourth quarter of 2022 is probably only the beginning of the earnings difficulties for American firms. The fourth quarter of 2022 is anticipated to have the worst profit season outside of a recession in 24 years, according to Credit Suisse.
Fourth Quarter Earnings: A Look Toward the Future
Results from 344 of the S&P 500 firms have already been released, and the earnings for the quarter are anticipated to have decreased 2.8% from the same time last year. This would throw the S&P 500 into an earnings recession, which is a back-to-back decrease in earnings and has not happened since COVID-19 affected corporate results in 2020, coupled with the anticipated decline in earnings in the first and second quarters.
Analysts anticipate further decline
Analysts now predict that the S&P 500 profits will decline 3.7% YoY in the first quarter of 2023 and 3.1% in the second quarter as strategists see minimal recovery for the season. According to Jonathan Golub, Chief U.S. Equity Strategist & Head of Quantitative Research at Credit Suisse Securities, the rate at which the 2023 numbers are declining is just worse than anticipated.
Concerns about monetary policy and inflation
Concerns about how high the Federal Reserve will need to raise interest rates in order to maintain a declining inflation trajectory have grown as a result of the dimming earnings outlook. In a research, Morgan Stanley analysts stated that given the impending earnings recession and the fact that monetary policy is still tight.
Margin Impact of a Limited Labor Market
One of the primary causes of the wages fall is a tight labor market, which is predicted to stay stickier than other pressures. This opinion has been reinforced by the most recent jobs report for January, which revealed increasing job creation and the lowest unemployment rate in 53 and a half years. However, the data also stoked concerns that robust job growth would result in further Federal Reserve rate rises. Golub asserts that they are doing well if you look at revenues, nevertheless.