Examining of Corporate Results

    | August 8, 2022

    Telemus Weekly Market Review August 1st - August 5th, 2022

    After two strong weeks that fueled July’s surge in equity prices, stocks started to level off this past week, rising a modest 0.4%. As the week concluded, 87% of the companies making up the S&P 500 have reported their financial results for the second quarter of 2022. The average company’s results have been 3.4% above expectations, which while positive, is below the five-year average of company’s reporting 8.8% above expectations¹. While less pronounced, it appears that earnings reports have not been as bad as many have feared. This backdrop has been supportive to stock prices and contributed to a 9% rise in the S&P 500 since July 14th when earnings reports began to kick off.

    What we’ve seen out of corporate results is that conditions through the second quarter weren’t that bad. If we dissect results, we see the revenue growth remains positive, but the rate of growth is slowing. Moreover, when you adjust revenue growth for inflation, revenues are up only slightly. This would imply that most of the sales growth is coming from price hikes, versus selling a higher quantity of goods or services. In addition, in the second quarter, companies that have reported have on average grown their earnings 7.6% over the past year². This is below the pace of revenue growth, which has been 13%². The fact that earnings are growing slower than revenue would imply that corporate profit margins have been declining.

    When you look beyond the averages, S&P 500 growth has been almost entirely fueled by the energy sector. In fact, earnings for the 432 constituents of the S&P 500 that have reported second quarter earnings have fallen by -2.2%, if you exclude energy stocks². The significant rise in oil prices is the dominant driver fueling the astounding 261% annualized growth for the energy sector². Thus, behind the curtain results aren’t as solid as the averages would imply. In fact, five of the eleven sectors making up the S&P 500 index have seen earnings decline during the second quarter¹.

    Looking ahead, market expectations are for revenue to grow high single digits and earnings to grow mid-single digits during the back half of 2022. Recent economic readings would indicate that while the economy remains in stable shape, its going to be an increasing challenge for companies to meet these growth targets, particularly given that they have been performing with profit margins that are record levels. We expect this to lead to an environment where volatility persists as market expectations for individual stocks catch up with the evolving economy. This should translate into wider variations in returns across sectors and individual stocks.


    ¹Source: Factset. S&P 500 Earnings Season Update: August 5, 2022.
    ²Source: Bloomberg


    All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Telemus Capital cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. Current and future portfolio holdings are subject to risk. Risks may include interest-rate risk, market risk, inflation risk, deflation risk, currency risk, reinvestment risk, business risk, liquidity risk, financial risk, and cybersecurity risk. These risks are more fully described in Telemus Capital's Firm Brochure (Part 2A of Form ADV), which is available upon request. Telemus Capital does not guarantee the results of any investments. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, and may lose value. Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. The S&P 500 index includes 500 leading companies in the US and is widely regarded as the best single gauge of large-cap US equities.

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    Matt Dmytryszyn

    Matt joined the Telemus team in 2018. As Chief Investment Officer, he leads the firms the investment process and research effort. Matt has experience as an equity analyst and portfolio manager and has advised corporate pension plans on their manager selection. He’s been quoted in Money Magazine and Barron’s.

    Matt Dmytryszyn mdmytryszyn@telemus.com
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