Topic 2: S&P 500: Q3 EARNINGS ESTIMATE DOWN 6.6%

PACE OF FED RATE HIKES HAS BEEN RAPID IN THIS CYCLE COMPARED TO PREVIOUS ONES After witnessing significant earnings growth in the first half of 2022, all eyes are now on the third quarter earnings season. Markets are heading into the earnings season on poor footing as US stocks are witnessing heightened volatility amid concerns that the Fed's aggressive rate hikes will result in a possible recession. Analysts will track EPS and guidance in each sector and will likely adjust the earnings and revenue estimates for the next few quarters.

At the end of June, analysts expected third-quarter EPS for the S&P 500 index to be 9.8% higher than last year's third quarter. However, there have been a series of earnings downgrades over the previous three months. For Q3 2022, analysts expect EPS growth to be just 2.9%, as they believe it would be difficult for businesses to maintain profitability given the current economic environment. Labour costs, supply chain disruptions, and

unfavourable foreign exchange rates are some of the major concerns negatively impacting earnings. From an earnings contribution perspective, we expect companies within the energy and industrial sector to be the major contributors toward overall growth in the earnings for the index. Currently, markets are looking at companies to provide forward guidance for the last quarter of 2022 and CY2023. Given the host of worries, we may see an increase in companies either withdrawing forward guidance or lowering forward guidance which will bring further downward revisions to earnings and revenue estimates.



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