Over the next few weeks, a steady stream of second-quarter earnings reports will reveal how companies have navigated historically high inflation, continued supply chain challenges, and shifts in consumer spending from goods to services.
Perhaps more important – those companies may offer guidance on their outlook for these and other key concerns for the rest of the year—at a time when rapid changes and headwinds in the economy and financial markets are making it difficult to predict how the final six months of 2022 will look.
Content continues below advertisement
Here’s what we see going into earnings season: Despite a growing chorus of voices calling for a recession, Wall Street analysts have yet to take off their rose-colored glasses regarding their earnings growth estimates for U.S. companies.
Note the massive disconnect between double-digit expectations and actual single-digit results shown in the chart:
- The average forecasted earnings growth for the next 12 months is a robust 24.7%.
- In stark contrast, the average company’s earnings growth over the previous 12 months was just 8.4%.
Bigger picture, note that while analysts virtually never predict negative earnings growth (the blue line in the chart), actual earnings growth does fall into negative territory fairly frequently (the orange line). Likewise, actual earnings growth rarely exceeds analysts’ earning growth estimates.
The message: Analysts’ historical tendency to be overly optimistic may very well be in effect again today. Unless estimates are revised downward for 2022, there likely will be big earnings disappointments over the next few quarters. With that in mind, we expect to see downgrades from analysts in the coming weeks—particularly if, as the current earnings season continues, a significant percentage of bellwether businesses offer challenging outlooks for their future results.
For more news, information, and strategy, visit the ETF Strategist Channel.
This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, contact Chief Investment Officer Scott Ladner at 704-919-3602 or email@example.com.
Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. Index information is intended to be indicative of broad market conditions. The performance of an unmanaged index is not indicative of the performance of any particular investment. It is not possible to invest directly in an index.
Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed herein are our opinions as of the date of this document. These opinions may not be reflected in all of our strategies. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent.
Other disclosure information is available at www.horizoninvestments.com.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC
©2022 Horizon Investments LLC
newETFs.io respects the hard work of others and gives all credit to the remarkable folks at ETFTrends.com. This excerpt/article was pulled from their RSS feed; click here to view the original. Please note that on occasion, the RSS feed will not have the author. When this happens this site defaults the author to "News". Make no mistake, this excerpt/article was not created by newETFs.io, it was simply shared with you.