Earnings season is here

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The third quarter earnings season is about to tell. We all expected monster numbers across the board from Q2 results — but this time around, some companies will differentiate themselves from others in how they’ve managed the growing supply chain headache and the effects of the delta version.

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why it matters: The pace of economic growth is expected to slow down in the third quarter. This will show earnings, which started trickling in last week.

  • yes but: Growth compared to 2020 will still be substantial, as well as compared to pre-pandemic earnings in 2019.

By numbers: According to the S&P Capital IQ consensus estimates, third-quarter average EPS in the S&P 500 is expected to reach $48.32, a decline of 8.3% from the second quarter.

  • This would represent an increase of 24.5% from the previous year compared to an increase of 88.5% in Q2 2021 from the depth of the pandemic.
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Reference: According to FactSet, second-quarter year-over-year S&P earnings growth was the biggest since Q4 2009, when the economy was exiting the financial crisis.

big picture: Since 2009, the S&P 500 has outperformed analyst EPS growth estimates in all but one quarter (the second quarter of 2020, not surprisingly). But it faces an uphill climb to beat in Q3, Sam Stovall, CIO of CFRA Research, tells Nerdshala.

  • In a sign of emerging challenges, economists have lowered their GDP estimates during the quarter.
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state of play: According to Anastasia Amoroso, Chief Investment Strategist at iCapital, earnings growth is expected from the energy and materials sectors, while the travel, leisure and hospitality will be a drag on growth due to the impact of the Delta variant.

What are we watching: Margin. One of the big questions right now is how many businesses are able to raise prices (Bed Bath & Beyond.) said In the first month that it didn’t act fast enough – and its stock tanked).

  • Inventory level, too. The slowdown in the supply chain has eroded consumer demand in the already depleted reserves. Quarter-end figures will indicate how much it may cost companies to restock in Q4 and beyond.
  • semiconductor report Q4 will give clues about the outlook and how quickly the world will recover from the chip shortage, Amoroso says.

Bottom-line: While 24.5% growth may have felt like a buzzkill after 88.5% in Q2, it’s still nearly triple the 9% to 10% growth that’s typical for the S&P 500.

  • “We are seeing the economy returning to normal, post-pandemic, and this quarter, in particular, we managed to stay through the delta version,” says Amoroso.

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