REFOCUS: Global fourth quarter 2021 earnings season unofficially starts Friday with US banks JPM, C, and WFC. Consensus is for strong 20% earnings growth from the S&P 500 and 50% from Europe’s Stoxx600, with UK +200%. We see room for even more, led by cyclicals, with robust revenues and continued near-record net profit margins. A strong earnings season is needed. 1) To offset current hawkish Fed pressures on high valuations, and 2) refocus attention on the too-low 8% global earnings growth expectations for 2022.
MORE: The past year saw a record 23% surge in earnings expectations versus January 1st. This is unrepeatable. You cannot fool analysts every time. But we do see room for a modest earnings beat this quarter. 1) US forecasts are low, with a 5% decline from last quarter (see chart). 2) Despite an acceleration in economic growth. The Fed Q4 GDP NOWCast is at 6.7% vs 0.2% in Q3, helped by lower virus cases. 3) And less cost pressure. The gap between US producer and consumer inflation fell to under 3% in Q4.
BANKS: Bank earnings kick-off and will be better than they look. The low 2% earnings growth forecast reflects concerns on sustainability of booming capital markets revenues and loan-loss provision reversals. This will be more than offset by the structural benefit from both higher bond yields and recovering loan growth. This could also justify higher valuations. Other cyclicals like commodities and industrials will lead growth, with their earnings ‘leverage’ well above the respective US 12% and Europe 17% revenue growth.
All data, figures & charts are valid as of 10/01/2022