The Q2 earnings season is approaching, and it is time for investors to strategize on how they can take advantage of the price movements that will be caused by the Q2 earnings season.
The Russia-Ukranian conflict is expected to influence the Q2 earning season results. Several countries have placed sanctions on Russia, which have affected the price of energy resources like gas and oil.
Energy prices have soared to highs that have not been seen for a long time, and overall, the prices of stock commodities are also expected to increase.
Note that the two nations are also major producers of commodities like corn wheat; hence the impact of the war cannot be ignored in the Q2 earnings season results. An expected reduction in interest rates is also not anticipated to happen with everything going on.
So what should investors expect? Increased market volatility, high-interest rates, the rising value of food stock, and shipping disruptions whose impact will be felt in several sectors.
S&P 500 Companies
The S&P 500 index is a popular benchmark used by investors and analysts to determine the economy’s health. Being an essential benchmark for the U.S. stock market, many investors are keen on the 500 large-cap companies for their portfolios.
With such a level of interest, investors should look out for the S&P 500 companies’ Q2 financial reports. So far, the companies have been beating the earnings per share estimates above the five-year average.
However, it is essential to note that the magnitude is not like it has been in the past. There have been low earnings in correlation to the recent quarters.
In Q1, the reports were impressive, with 80% of the companies having more earnings than the EPS estimates. This is more than the five-year average, which is 77%. So what is the outlook for Q2 and the rest of the year? Analysts predict that the S&P 500 companies will experience earnings of 5.5%. The earnings are expected to continue growing in the subsequent quarters.
What are analysts saying about the S&P 500 Q2 reports?
Analysts have their eyes on employment reports. Companies have likely started letting go of employees they had hired to cushion their operations during the pandemic. The reports will give them clues about business investment and future spending.
Analysts expect earnings per share growth of $1.43 in 2022 Q2. This is in comparison to the 2021 earnings of the same quarter of $1.40. Revenue growth is anticipated but slower compared to the previous quarters.
Apple, for instance, reported impressive revenue growth in 2021, driven by an increase in product sales. The overall growth of the company has been slow. The company might be considering paying attention to service businesses to boost growth.
With these insights, the analysts expect the company’s revenue to grow at twice the pace it has so far. Thus, investors will be focused on seeing if the company will be able to achieve the growth rate experienced in previous quarters. While this is the case, analysts are not optimistic about the growth as they expect the slow revenue growth to continue for about six quarters.
What Investors Should Look Out for In Q2 Earning Season
Here are the key focus areas for investors in the Q2 earnings season.
1. Wage growth
The federal reserve will probably monitor the wage growth trend to check if inflation pressure is anchored and determine the rate policy’s status. Analysts expect the wage growth in the coming months to be moderate.
If this happens, the worry that inflation is getting out of control will be addressed, and stocks should react favorably.
2. Federal Reserve Movement
Investors should be on the lookout for the moves the federal reserve will be making that could potentially increase the interest rates. If the Fed hikes the rate, investors should consider how that could affect their investment.
Aggressive actions from the federal reserve could increase volatility.
3. Geopolitical Tension
The Russia-Ukraine war is likely to impact the earnings report of companies, commodities, and the energy market. Already, the direction of commodities prices has changed due to the tension, and energy prices have soared.
The sanctions placed on Russia have a significant effect on the global economy. The development of the Russia- Ukraine war is something critical to watch because of the Q2 earnings season.
As the Q2 earnings season approaches, investors need to look at the macro environment state and its impact on their portfolio. A wide range of factors such as geopolitical tension, federal reserve actions, and wage growth could influence their earnings reports.
Generally, analysts are not optimistic about the reported revenues, but they expect growth, mainly at a slow pace. While the stocks may be doing better than during the Covid-19 times, investors are still concerned by the uncertainties caused by macroeconomic factors.