By Tom Burnett CFA
According to the May 6, 2022, issue of the FACTSET Earnings Insight, the consensus earnings estimates for the S/P 500 Index in 2022 are being reduced. Looking back to early January, this reduction, while small, is the first one of the 2022 year. Back in January, the 2022 consensus estimate was for $225 which would represent an increase of 9.1% from the 2021 actual earnings of $207. Throughout the year, the estimates rose to a high of $230 in the April 29 issue of Earnings Insight. In the latest issue, however, the consensus figure for 2022 is now $229, breaking the upward trend. Looking at the major headwinds faced by corporations (China lockdown, inflation, rising interest rates, and the Russian invasion of Ukraine) it is very likely that further reductions will be issued. The collective Guidance, for example, for the second quarter of the year shows 50 of the S/P 500 with negative guidance and only 22 companies with positive guidance. Admittedly, the reduction in the consensus figures is small, but it breaks the positive trend and investors must watch the upcoming earnings forecasts carefully since rising interest rates and falling profits would be highly negative for the stock market. It should be noted that the consensus estimates for 2023 remain at $251 and have not been reduced. We intend to monitor the earnings projections carefully, but a warning caution light has been lit and investors would be wise to remain alert for further reductions in the 2022 estimates.
Tom Burnett CFA is Director of Research