JPMorgan will report its earnings for the first quarter on Wednesday to start the season in the United States. Banks are ready to strike at the slowdown in corporate deals, while energy is ready to recover amid a jump in crude oil prices.
Wall Street cut expectations at the beginning of the quarter, but corporate America is expected to pass its “last big hit in a while,” analysts at Bank of America said.
Upper and lower lines
The S&P 500 is expected to report “mixed” growth – a combination of actual and expected earnings per share – of 4.5% in the first quarter of a year ago, according to data provider FactSet.
Difficult comparisons from a year ago and a number of macroeconomic disruptions, including inflation and bottlenecks in the supply chain, have been blamed for what could be the slowest growth rate of EPS since the fourth quarter of 2020.
However, US companies with blue chips often overcame gloomy initial estimates, and based on the average rate of decline over the past five years, FactSet expects profits to rise by 12.8% in the first three months of the year. This will mark the fifth consecutive quarter of profit growth of more than 10 percent.
Revenues are projected to grow by 10.7 per cent, driven by the energy, materials and real estate sectors.
Energy
Energy is expected to be a leader in the S&P 500 sectors, as rising oil prices increase revenue and profits. The energy sector is expected to grow by 252.6%, while revenues are expected to grow by nearly 45% compared to a year earlier, supported by a 33% increase in crude oil prices.
Oil prices have been volatile since the February 24 invasion of Ukraine. Brent crude, an international oil figure, rose to nearly $ 140 a barrel last month, only to give up some of those gains after the United States said it would release emergency reserves. More blocking of Covid-19 in China has raised the prospect of weakening oil demand.
Finance
The financial sector is expected to report a 25.7% drop in profits due to banks, where analysts predict a 36% drop in EPS.
Banks are expected to report a slowdown in investment banking revenues after stimulus measures and markets supported the growth of mergers and acquisitions and initial public offerings last year. FactSet’s John Butters noted that banks are expected to report higher loan loss provisions, which will slow growth.
inflation
Inflation is expected to be a barrier for companies in the first quarter of fiscal 2022. Of the 20 S&P 500 companies that reported results, FactSet said nearly two-thirds cited labor costs and shortages as a burden on results. Pandemic costs and supply chain disruptions were also mentioned as negative factors.
However, companies continue to raise prices to offset inflationary pressure on spending. Many large consumer groups have shifted the higher investment costs to consumers by raising the prices of their products in the fourth quarter of 2021.
Investors will tune in to any management comment on the impact of the war in Ukraine, which could increase inflationary pressures. FactSet noted that 13 of the 20 S&P 500 companies that reported results mentioned Ukraine, but only five said the war had hurt their business.
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