US Q1 2022 earnings season is coming, what are the key watch points and what can investors do?

The Q1 2022 earnings season will officially be kicked off by JP Morgan and the other big banks on April 13th. Investors will be keen to know how the turbulent economic environment that mixed four decade-high inflation, rate hikes and geopolitical tension impacted the performance of the US's best businesses.

Q4 2021 earnings review

From the last earnings season, S&P 500 companies have reported more than 25% earnings growth, another double-digit jump for the fourth straight quarter. Full-year earnings growth was concluded at a jaw-dropping 45% increase rate.

These well-above-average performances are primarily due to a strong economic recovery in 2021 and an easier comparison to negative earnings from the previous year when COVID-19 first hit the world. In terms of sectors: energy, industrials, materials, and consumer discretionary lead the march.

What to expect from the Q1 report?

While the data is promising, there is a slowdown in the earnings growth causing the market to be wary. There’s still a lot to unpack for this quarter and the outlook for the rest of 2022.

From a macro perspective, inflation and supply chain issues, which 75% of public companies have quoted as major concerns in the recent report, worsened during the quarter in the wake of the Ukrainian invasion and the Covid related lockdowns in China. As a result, market participants won’t be too surprised if the reports show a slimmer margin and weaker profitability.

From the viewpoint of the individual business, how is the company dealing with its headaches? Is there any new opportunity for growth that can be or has been spotted in the post-pandemic phase? The answer to all these questions is likely to catch investor's eye.

US stock market Q1 review

Unfortunately, the start of 2022 wasn’t a pleasant start to the year with the stock and bond markets enduring significant losses and heightened volatility. All three major US indexes entered into correction zone during the first quarter with Nasdaq as the worst performer out of three, diving into a bear market in mid-Feb.

Even though the market has rolled back since mid-March, all three indices still recorded negative quarterly earnings for Q1, meaning this has been the worse quarterly performance since 2020.

S&P 500

S&P 500’s rebound after FOMC’s March meeting has paused recently as the fear of tightening monetary policy resurfaced in April. The pullback has taken the index breaching through the 20 and 100-days moving average (MA) at around 4503.

Moving towards the next major support area near 4413, the level combining March high and current 50-day MA, the index is under heightening downside pressure as the RSI is entering the selling zone.

Major resistance above the 100-day MA can be found at 4591. This is the level where the Febuary to March correction started and above that level, the previous trend line should limit the sky for the S&P 500.

Nasdaq

Tech-heavy Nasdaq is on the back foot this week following the Federal Reserve’s plans to pare its balance sheet while rapidly hiking interest rates. As a result, the index has erased gains from the past two weeks and landed on crucial support.

Imminent support at 14461 has helped stop the sliding for US tech stock last July and October; however, the breaking of this level will open the floor for the index to return to its March low. If the index is attempting a rebound, level 14960 should be targeted.

Follow Hebe Chen on Twitter @BifeiChen