Q1 US earnings season preview – what to watch

When does earnings season begin?

The impending reporting season for US stocks begins on 14 April with JPMorgan, and lasts throughout April and May.

What to expect from earnings season

For this period of reporting, the overall S&P500 is expected to see earnings growth of 4.7%, according to data from FactSet. This would be the lowest rate of growth since quarter one (Q1) 2020.

Earnings growth to slow

This season is expected to see a slower rate of earnings growth, but one that is at least still positive. This reflects the maturing state of the economy and the market, which is now moving on from the immediate recovery phase from the Covid-19 pandemic. It is important to note that earnings are still expected to grow, with no sign of any reversal in earnings growth as yet.

But with prices on the rise some margin compression is likely. Higher input costs will be felt throughout a host of sectors, prompting profit margins to narrow. This should then be reflected in the earnings outlook for the next quarter. A gloomier outlook will risk putting more pressure on equity markets, as investors fret that the trend of weakening growth will continue.

What about the Ukraine war?

There was some reference to the war in Ukraine in the quarter four (Q4) results season. We can expect it to feature more heavily this time around although it is still perhaps too soon for most companies to have a firm idea of how much the situation will have affected earnings.

Oil companies however will be interesting to watch, since they have been the obvious beneficiaries of the rise in oil prices, while on the other hand, they have been hit by the need to divest themselves of operations in Russia. The overall impact for now on earnings may be a reference to ‘greater uncertainty’ and the prospect of further details in the next reporting season.

S&P 500 strong after recent recovery

The S&P 500 has managed an impressive rebound from its March lows. From 4130, the index has climbed back above 4500, even briefly moving above 4600 in late March. Earnings season may well be a crucial moment for the index, as investors look for reasons why the index should continue its move higher.

Additional gains in the short-term head towards 4630, and from there the 4740 and 4800 levels loom large as upside targets. A more bearish case will develop if the price is unable to hold above 4500 and the 200-day simple moving average (SMA) at 4494.