Will Slow Earnings Crash Stocks?

The most important time of the quarter has arrived – earnings season. Earnings season is the time when publicly traded companies report operating results for the previous quarter and share a forecast for the next quarter. The results and forecast will have a big impact on how stocks trade in the next few weeks and months.

Bad earnings, bad forecast = bad for stocks.

Good earnings, good forecast = good for stocks.

So what should we expect? I’m not expecting a terrible earnings seasons but it’s not going to be real pretty either. Sales and earnings growth are expected to see a pretty sharp slow down from previous quarters as inflation, war in Europe and rising interest rates weigh on economic growth.

  • Earnings are expected to increase 3.4% from last year, down from 32.6% growth last quarter.
  • Sales are expected to grow 9.9% from last year, down from 15.9% growth last quarter.

Take a look at the chart below from Zacks Investment Research – it shows the rate of sales and earnings growth of the S&P 500 (largest 500 companies) from the last four quarters, and projections for next four quarters.

As you can see, it’s not going to be a real great earnings season. But here’s the good news.

A lot of this weaker sales and earnings growth has been expected for a while and is largely priced into stocks.

Secondly, earnings growth rates are expected to bottom out this quarter (you can also see that in the chart above) and then steadily increase for the rest of the year. If that happens, then the U.S. should be able to avoid a recession this year and for the time being that is supportive of stocks.

In the meantime, the S&P 500 is down 8% on the year and trading in the middle of the 12-month range. Take a look at the 52-week chart below.

For the time being this still looks like a time to be more on the conservative side of things as opposed to very aggressive.

I will continue to focus on index funds, big tech and food and energy stocks. This portfolio is having a relatively good year and I think that will continue as we move deeper into 2022.

Everyone please have a great Easter or Passover and I will be back for another update next weekend

Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.


Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.