Beverage giant Pepsico, airline Delta Air and several major banks will be the first companies to report their second quarter results this week.
(Photo: dpa)
Frankfurt This quarter, investors are particularly nervous about the regular reports from listed companies. Because many analysts and strategists fear that weaker company figures, but above all bleaker prospects of company managers for their future business, will increase the fear of a recession and push share prices further down.
Since the beginning of the year, US shares in the leading indices S&P 500 and Nasdaq 100 have already fallen by around a fifth and around 28 percent, respectively.
This week, drinks giant Pepsico, airline Delta Air and several major banks will report on their second quarter. JP Morgan and Morgan Stanley will present their numbers on Thursday.
On average, analysts expect the 500 largest listed companies from the S&P 500 Index to see a slight increase in profits and sales of four and ten percent, respectively. According to Ulrich Stephan, chief investment strategist for private and corporate customers at Deutsche Bank, the margins are likely to have fallen.
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For some sectors, the experts are expecting a significant drop in profits: The weak half-year on the capital markets is likely to have shrunk the profits of financial companies by a good fifth in the second quarter. Analysts expect weaker results, especially in investment banking.
Communication services are also going through difficult times due to the ongoing pandemic and are likely to have posted an average profit loss of 14 percent. Utilities are also suffering from the skyrocketing energy prices. According to estimates, they will report twelve percent less profit.
In addition to companies in the oil and gas division, Stephan counts industrial and resource companies among the sectors that are doing well. In the case of energy producers, the high energy prices are likely to have caused a profit explosion of 239 percent.
For industrial companies, analysts expect an average of 30 percent higher profits thanks to better business after the lockdowns. The current commodity rally is likely to have given companies in this sector a 17 percent increase in profits in the second quarter.
Analysts expect negative annual prospects
The annual prospects of the board members will be particularly exciting. Analysts expect negative news here. Deutsche Bank strategist Stephan says: “In view of the declining consumer mood, passing on rising production costs will become increasingly difficult, while rising interest rates are depressing demand.” The optimism of the previous quarters could turn around accordingly and result in negative profit revisions, he fears.
In his view, the most important US stock index, the S&P 500, has already priced in a significant deterioration in earnings prospects. Nevertheless, a broad earnings revision could cause new turbulence.
Many experts are expecting an earnings recession. This means that for two consecutive quarters, corporate earnings have been lower on average than a year ago.
Ann-Katrin Petersen, capital market strategist at US fund provider Blackrock, sees potential for disappointment in analysts’ earnings estimates due to ongoing cost pressure and weaker sales. In both the US and Europe, corporate earnings growth could be at least a third lower than most currently expect for the next 12 months, she says.
The key question for the strategists at the US fund house JP Morgan Asset Management is “whether the development will be much worse than the market is already expecting”. One scenario is a short and shallow recession with earnings down about a tenth and a 20 to 25 percent price correction. A more pronounced downturn with significantly larger losses in profits and prices would be more drastic. All in all, analysts initially expect a milder course, so that corporate profits in industrialized countries will increase slightly in 2022 as a whole.
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