News & Insights

Yellow Flags Around Earnings and Growth

As we head into earnings season, we are seeing several yellow flags on earnings and growth. Not red flags, but yellow. After strong year-over-year results in 2021 compared to earnings posted during the pandemic, we believe current estimates for this year’s earnings are too high. There are a number of factors that will impact earnings, including rising wages, high energy prices and a still-unreliable supply chain. In addition, the Fed is now tightening monetary policy, and economic growth will decelerate. We expect earnings to be revised downward, and it’s hard to see a big upside against that backdrop.

The ongoing Ukraine crisis adds to the market’s recurring worries about inflation and supply-chain disruptions. The addition of geopolitical tensions to the mix has direct implications for the inflation outlook through higher prices for energy and other commodities. We knew all along that earnings growth was expected to decelerate significantly in the current and coming quarters, and the outlook for earnings started easing even before the recent geopolitical developments.