What should investors expect in the upcoming earnings season?

Earnings season is about to kick off with banks reporting next week.

• Should you be nervous going into earnings season? We won’t sugarcoat it. Yes, you should.
• The biggest thing to expect? Companies lowering earnings forecasts to reflect slowing growth and a potential recession.

According to Amati Global Investors Fund Manager Anna Macdonald, “The hit to corporate earnings could be quite rapid and quite extreme” (BBG).

Everyone seems to agree that earnings are about to fall — except analysts…

Head in the clouds: Analysts expect S&P 500 earnings to rise 10.7% in 2022 — up from 8.7% at the start of the year. Despite economic conditions worsening, analysts are actually more optimistic.

• Per a Bloomberg survey, 65% of respondents say analysts are “behind the curve” with factoring in lower earnings.
• Morgan Stanley’s Wealth Management Chief Investment Officer thinks “analysts are still in fantasy land” with earnings outlooks.

State Street Global Advisors’ Chief Investment Strategist thinks earnings projections could fall as much as 40% (BBG).

Last week, JPMorgan cut earnings estimates on 26 internet companies, including Amazon, Nvidia and Alphabet.

Bad sign for the market: Micron’s earnings last week were one of the first signs of trouble. And not only for the semiconductor industry.

• All industries use semiconductor chips in their products — i.e., phones, PCs, medical equipment, cars, data centers, etc.
• So when chip sales go down, it’s a bad sign for the entire economy.

If earnings do fall, stocks might not look as cheap as they seem. This adds to the argument that it’s not time to get back into the market yet.