Why Q1 Earnings Season Has Been ‘Death By Paper Cuts’

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The SPDR S&P 500 ETF Trust (NYSE:SPY) recently hit its lowest level of 2022 this week despite overall first-quarter earnings numbers that are relatively solid. Unfortunately, Bank of America analyst Savita Subramanian said overall S&P 500 earnings numbers for the first quarter aren’t as strong as they may seem at first glance, and the index is experiencing a “death by paper cuts.”

The Numbers

Subramanian said S&P 500 EPS is up 11 percent year-over-year, exceeding consensus estimates by about 6 percent on the quarter. However, she said guidance updates this quarter have been the worst since the COVID-19 pandemic hit in the second quarter of 2020. As a result, Subramanian said the S&P 500 is at a high risk of significantly missing full-year consensus ESP estimates of $251. Bank of America is projecting just $230 in 2022 S&P 500 EPS with a downside of around $200 if the U.S. economy falls into a recession.

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“We see risks to 2023 earnings even under a no recession scenario. We are 8 percent below consensus, and see risks to earnings in Consumer Discretionary, Materials, and other big-ticket exposed sectors,” Subramanian said.

Hidden Weakness

Subramanian said this underlying earnings guidance weakness has been masked by the booming energy sector. Overall 2022 S&P 500 EPS estimates are up since the beginning of 2022, led by the energy sector. Consensus 2022 energy sector EPS estimates are up 62 percent year-to-date, while consensus EPS estimates for the rest of the S&P 500 are down 0.5 percent.

Benzinga’s Take

Market sentiment also seems to be playing a role in S&P 500 weakness year-to-date. Bank of America reported that stock gains following earnings beats this quarter has been lower than their historical average, while stock losses following earnings misses have been larger than average.

Benzinga

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