Skip to main content
logo
  • Investment Strategies

    Investment Options

    • Alternatives
    • Beta Strategies
    • Equities
    • Fixed Income
    • Global Liquidity
    • Multi-Asset Solutions

    Capabilities & Solutions

    • ETFs
    • Pension Strategy & Analytics
    • Global Insurance Solutions
    • Outsourced CIO
    • Sustainable Investing
  • Insights

    Market Insights

    • Market Insights Overview
    • Eye on the Market
    • Guide to the Markets
    • Guide to Alternatives
    • Market Updates
    • Guide to China

    Portfolio Insights

    • Portfolio Insights Overview
    • Alternatives
    • Asset Class Views
    • Currency
    • Equity
    • ETF Perspectives
    • Fixed Income
    • Long-Term Capital Market Assumptions
    • Sustainable Investing
    • Strategic Investment Advisory Group

    Retirement Insights

    • Retirement Insights Overview
    • Essential Elements of a Sound Retirement System
    • Building Better Retirement Portfolios
  • Resources
    • Center for Investment Excellence Podcasts
    • Insights App
    • Library
    • Webcasts
    • Multimedia
    • NEW Morgan Institutional
  • About us
  • Contact Us
  • English
  • Role
  • Country
  • Morgan Institutional
    Search
    Search
    Menu
    You are about to leave the site Close
    J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
    CONTINUE Go Back
    1. What should investors expect for 3Q22 earnings?

    • LinkedIn Twitter Facebook Line

    What should investors expect for 3Q22 earnings?

    2022/10/14

    Nimish Vyas

    Profits in sectors with greater operating leverage should be more resilient given elevated inflation over the next few months, but as economic growth begins to slow and inflation cools, we may see investors rotate back into the growthier parts of the market.

    Nimish Vyas

    Listen to On the Minds of Investors

    2022/10/14

    Show Transcript Hide Transcript

    Hello my name is Nimish Vyas and I am a research analyst on the global market insights strategy team at JP Morgan Asset Management. Welcome to on the minds of investors. Today's topic is what should investors expect for 3Q2022 earnings? The third quarter earnings season is set to kick off with the large US banks releasing results. Our current estimate for 3Q2022 S&P 500 operating earnings per share is $53.82, representing year over year growth of 3.5% and quarter over quarter growth of 14.8% The strong estimates are supported by a number of tailwinds, including higher energy prices, a resumption in travel during the summer, and positive industrial production and retail sales data. That being said, there is also a considerable set of macro headwinds which could push actual earnings to come and below projections. The US dollar strengthens 16.7% year over year during the quarter, which, coupled with deteriorating economic conditions in Europe and continued COVID 19, lockdowns in China, could weigh on foreign source sales. Furthermore, early reporters have noted additional headwinds of softening consumer demand amid higher prices, increasing labor costs, higher freight costs, and a build up of excess inventories. At the sector level, energy is projected to lead the pack due to higher crude oil and natural gas prices in. Similarly, estimates indicate a strong quarter for industrials. Within industrials, the airlines are expected to see profit growth decelerate due to increasing costs relative to demand, but are expected to stay profitable. Transport should also be another bright spot as the rail companies benefit from higher volumes and higher pricing due to fuel surcharges. Materials are likely to be weaker due to a pullback in commodities prices and the sector's high exposure to foreign markets. Financials are expected to contract primarily due to a build up in loan loss provisions, weak investment banking activity and slower loan growth. However, higher interest rates and market volatility may partially help may help partially offset these pressures by boosting net interest income and trading revenues. Turning to growth, consumer discretionary could be well supported in contrast to recent quarters by demand for services, although preliminary reports have highlighted softening consumer demand in retail and production issues at the auto companies. Health care information technology are currently set to see more subdued rates of growth in earnings this time around Among the health care names, COVID 19 vaccine and testing sales are expected to be down from their peak in 3Q2021 and will act as a drag on profit growth. In information technology, persistent inflation fears of a global slowdown have seemingly begun hurting demand for hardware. The number of firms announcing plans to scrap production increases and cut spending communication services is tracking a much sharper decline than its growth peers, as analysts are pessimistic about the sector's ability to grow streaming and gaming subscriptions in the current market environment similar to the prior quarter operating leverage, which is defined as the change in operating income from a 1% change in revenues, will be key for profitability. Value sectors tend to have more operating leverage than growth sectors. Profits and in sectors with greater operating leverage should be more resilient given elevated inflation over the next few months. But as economic growth begins to slow and inflation cools, we may see investors rotate back into the wealthier parts of the market. 

    The third quarter earnings season is set to kick-off with the large U.S. banks releasing results. Our current estimate for 3Q22 S&P 500 operating earnings per share (EPS) is $53.82, representing year-over-year (y/y) growth of 3.5% and quarter-over-quarter (q/q) growth of 14.8%.

    The strong estimates are supported by a number of tailwinds, including higher energy prices, a resumption in travel during the summer, and positive industrial production and retail sales data. That being said, there is also a considerable set of macro headwinds, which could push actual earnings to come in below projections. The U.S. dollar strengthened 16.7% y/y during the quarter, which, coupled with deteriorating conditions in Europe and continued COVID-19 lockdowns in China could weigh on foreign-sourced sales. Furthermore, early reporters have noted additional headwinds of softening consumer demand amid higher prices, increasing labor costs, higher freight costs, and a build-up of excess inventories.

    At the sector level, energy is projected to lead the pack due to higher crude oil and natural gas prices in Q3. Similarly, estimates indicate a strong quarter for industrials. Within industrials, the airlines are expected to see profit growth decelerate due to increasing costs relative to demand but are expected to stay profitable. Transport should also be another bright spot, as the rail companies benefit from higher volumes and higher pricing due to fuel surcharges. Materials are likely to be weaker due to a pullback in commodities prices and the sector’s high exposure to foreign markets. Financials are expected to contract, primarily due to a build-up in loan loss provisions, weak investment banking activity, and slower loan growth. However, higher interest rates and market volatility may help partially offset these pressures by boosting net interest income and trading revenues. 

    Turning to growth, consumer discretionary could be well supported, in contrast to recent quarters, by demand for services, although preliminary reports have highlighted softening consumer demand in retail and production issues at the auto companies. Health care and information technology are currently set to see more subdued rates of growth in earnings this time around. Among the health care names, COVID-19 vaccine and testing sales are expected to be down from their peak in 3Q21 and will act as a drag on profit growth. In information technology, persistent inflation and fears of a global slowdown have seemingly begun hurting demand for hardware, with a number of firms announcing plans to scrap production increases and cut spending. Communication services is tracking a much sharper decline than its growth peers, as analysts are pessimistic about the sector’s ability to grow streaming and gaming subscriptions in the current market environment.

    Similar to the prior quarter, operating leverage, which is defined as the change in operating income from a 1% change in revenues, will be key for profitability. Value sectors tend to have more operating leverage than growth sectors. Profits in sectors with greater operating leverage should be more resilient given elevated inflation over the next few months, but as economic growth begins to slow and inflation cools, we may see investors rotate back into the growthier parts of the market.

    S&P 500 EPS contribution by sector

    3Q22, operating earnings 

    A chart showing S&P 500 EPS contribution by sector.

    Source: FactSet, Standard & Poor's, J.P. Morgan Asset Management.

    All data are as of October 13, 2022.

    09sf221910022032

    EXPLORE MORE

    On the Minds of Investors

    What investment questions are on the minds of investors? Explore the questions investors ask frequently and find answers at J.P. Morgan Asset Management.

    Read more

    Guide to the Markets

    The J.P. Morgan Guide to the Markets illustrates a comprehensive array of market and economic histories, trends and statistics through clear charts and graphs.

    Read more

    Asset Class Views

    Get quarterly commentary and in-depth analysis on equities, fixed income and other asset classes, written by our senior investment teams.

    Read more
    • Equities
    • Markets
    J.P. Morgan Asset Management

    • About us
    • Investment stewardship
    • Privacy policy
    • Cookie policy
    • Binding corporate rules
    • Sitemap
    Opens LinkedIn site in new window
    J.P. Morgan

    • J.P. Morgan
    • JPMorgan Chase
    • Chase

    READ IMPORTANT LEGAL INFORMATION. CLICK HERE >

    The value of investments may go down as well as up and investors may not get back the full amount invested.

    Copyright 2023 JPMorgan Chase & Co. All rights reserved.