Market Week: April 25, 2022

The week in review

  • Housing starts increased 0.28% m/m
  • Initial claims rose to 184k

The week ahead

  • 1Q22 real GDP
  • Case-Shiller HPI
  • Personal income

Thought of the week
With 22.0% of market cap reporting, 1Q22 S&P 500 operating earnings per share (EPS) are currently tracking $51.30. If realized this would represent a y/y increase of 8.2% and a q/q contraction of 9.5%. Both are an improvement from the start of the quarter when we were tracking a y/y increase and q/q decline of 7.2% and 10.4%, respectively. Much of this has to do with financials. Of the 32 financials that have reported earnings, 72% have beaten estimates. Yet despite the decent beat figure for financials, the sector as a whole is still tracking a y/y decline. Results have been hampered by huge loan loss reserve releases this time last year, a drop off in mortgage and capital markets activity and higher noninterest expenses due to rising compensation and continued business related investments.

Additionally, given the uncertain economic backdrop over the next 12-months, some banks even built up provisions for losses in 1Q22, which acted as another drag on profitability. In the industrial sector, many of the U.S. airlines reported results last week. While they still remain unprofitable, most, if not all, expect to record a profit in 2Q22 on the back of robust travel demand offsetting increasing expenses. A common theme in earnings so far has been the continued focus on margins, particularly on how companies will preserve profitability in the wake of surging costs. While many consumer discretionary names have benefited from price hikes, companies within the sector are now acknowledging
cost pressures could dent margins going forward as they lose pricing tolerance from consumers. More broadly, margin resilience will be key if earnings are to grow in 2022, but clearly defending margins will require a combination of higher prices as well as a focus on efficiency.

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