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Perspectives

Q4 earnings season continued to prove mediocre

by Fortem Financial January 31, 2022

U.S. equities finished last week mostly higher (S&P 500 +0.8%), coming off intraweek lows and rallying strongly on Friday. The S&P 500 moved into double-digit percentage loss territory several times before the end of the week rally. The market reacted negatively to the FOMC meeting, judging that the recent hawkish Fed repricing has more room to run. The Q4 earnings season also continued to prove mediocre, with supply disruptions and cost pressures showing up in too many reports. Best sectors were energy (+5.0%) and technology (+2.3%); worst performers were industrials (-1.5%) and utilities (-1.4%).

Week Two Earnings Season Mostly Status Quo

The second week of earnings season was rather uneventful. Aggregate earnings growth ticked higher to 25.2%, up from 23.7% last week. This increase can largely be attributed to the improvement in the technology sector. Aggregate sales growth also improved from 12.4% to 13.4% this week, which is a function of the energy and the technology sectors reporting stronger sales.

Earnings Surprise Factor Dips Below Long-Term Average

Another indication of earnings season thus far turning out to be status quo is that the surprise ratio is just 4%. Believe it or not, this has dipped below the long-term average of 4.1% based on data back to 1994. Of course, this could change as we still have 2/3rds of the S&P left to report, but it’s clear that companies are no longer surprising wall-street analysts.

Operating Margins Holding Steady

With discussions of higher expenses for the year to come due to higher input costs and rising wages, operating margins have been holding up quite well. As expected, the pace of the rise has slowed, but the fact they are still rising at all should provide some optimism. The slower rise resembles more of a mid-cycle environment for companies.

Mentions of Inflation Beginning To Taper Off

With inflation running near 7% and the fed not even beginning to raise rates, the mentions of inflation on company transcripts have started to taper off. This is now two months in a row where the mentions of inflation have declined on a month-over-month basis. With a significant number of companies still to report in February, it will be another crucial month to see if this trend persists.

Source: Strategas


Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

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