A High Stakes (And High Hopes) Earnings Week

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(Photo by Chris Hondros/Getty Images)

So far, 2022 has not been a great year for stock prices. Last Friday saw one of the worst falls of an already subpar year.

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On April 22, the Dow dropped by 968 points, representing a 2.7 percent decline and giving the index its worst day since 2020. The Nasdaq fell by 2.3 percent. The S&P 500 fared comparatively well, losing only 2 percent of its value.

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Friday’s stock market rout was blamed on a number of companies reporting poor quarterly results. Those earnings reports came on the heels of several weeks of disappointment for the stock market.

More broadly, fears are growing that the Federal Reserve could cause a recession with its aggressive action aimed at taming inflation. Federal Reserve Chairman Jerome Powell spoke last Thursday on an International Monetary Fund panel and hinted at a possible half-a-percentage-point interest rate hike for May.

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The fears of a Fed-induced recession are not necessarily unfounded. While the Fed has successfully tamped down inflation in the past, it does not exactly have a great track record when it comes to the avoidance of recessions. This is being reflected in the stock market. As of the end of last week, for instance, the S&P 500 was down 10.4 percent so far for 2022.

Still, there remains some optimism among investors. About 180 companies in the S&P 500, collectively representing about half of the benchmark’s market value, are due to report results this week. There are high hopes that many of the biggest U.S. companies will post excellent earnings numbers.

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Among the firms reporting quarterly results this week are the four largest U.S. companies by market capitalization. Apple, Microsoft, Amazon, and Alphabet (Google’s parent company) will all report. Results from such megacap companies can drag the entire market upward or downward right along with them.

Together, these four companies make up one-fifth of the S&P 500 by value. They are collectively worth about $8 trillion. As of Friday, share prices were down for the year for all four. Apple stock has declined by about 9 percent, Amazon shares are off by 13.4 percent, Alphabet stock fell by 17.4 percent, and Microsoft is down by around 18.5 percent compared to its price at the end of 2021.

In general, this is expected to be a strong year for corporate earnings. According to an estimate from Refinitiv IBES, S&P 500 companies will increase earnings by 9 percent in 2022. Given the fairly robust outlook for earnings, and the extremely large organizations set to report, this week could have the potential to turn things around for the stock market.

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Of course, things could continue to go the other way too. Many commentators, and the majority of the public at large, remain pessimistic about the stock market and about the economy as a whole.

I have repeatedly argued that wage gains, historically low unemployment, huge increases in GDP, growing corporate profit margins, and a number of other economic indicators demonstrate that the U.S. economy remains on fundamentally solid ground. Inflation, turmoil abroad, and overly tight monetary policy are serious economic concerns, no doubt about it. Nevertheless, all the currently swirling gloom in the world still doesn’t seem to me like enough to keep an otherwise robust economy down for long.

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Stocks took a battering in the first few months of the year. But don’t count 2022 out just yet. There are a lot of reasons for investors to be optimistic, and some of them could be on display this week as a number of America’s biggest corporations report their earnings. Keep an eye on the stock ticker this week, and you might be surprised.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at [email protected]. 

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ATL Finance, Finance, Finance Docket, Jonathan Wolf