Investors Nervous as Earnings Season Begins

Market Faces Strong Headwinds

Twin troubles of ever-rising inflation and increasing interest rates are creating fierce headwinds for the stock market. Year-to-date, both the broad-market S&P 500 and technology-laden Nasdaq Composite are in the red. Noting the fastest rise in inflation in 40 years, the Federal Reserve has indicated the likelihood of future 50-basis-point increases in the federal fund’s rate — double that enacted in their most recent meeting.

These factors, coupled with supply-chain issues, negatively impacted companies’ bottom lines, leaving investors nervous about the current earnings season.

UP This Week: JP Morgan, Goldman Sachs, United Healthcare

US companies will begin to release their latest quarterly results this week, including JPMorgan Chase (JPM), Goldman Sachs (GS), Delta Air Lines (DAL), and United Healthcare (UNH). Although analysts still expect to see profit growth, estimates are a fraction of what they were year-over-year in the fourth quarter of 2021. At that time, the strong showing reflected comparative strength vs. values during the worst of the pandemic.

Market observers anticipate the energy sector to shine. In contrast, financials and consumer-discretionary are expected by many to post lower profits.

Investors Looking for Profits

Investors will be scrutinizing the reports to get a sense for how businesses are managing in the face of higher costs. Some businesses are better able than others to pass price increases onto their customers. Declining profit margins may be a red flag for some.

Some wonder if the market has adequately considered the impact of tighter monetary policy and high inflation. To a certain extent, recent market declines have brought valuations down from previously lofty levels. But with markets still valued above long-term norms, some fear there could be room for an additional haircut.

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