JPMorgan Expects S&P 500 Earnings to Blow Past Gloomy Estimates

(Bloomberg) -- JPMorgan Chase & Co. strategists expect Corporate America to easily trounce Wall Street’s earnings forecasts. 

Consensus earnings estimates for the S&P 500 are “overly pessimistic” for the first quarter and companies in the index are poised to deliver a surprise of 4% to 5% on “better-than-feared margins,” according to a team of JPMorgan strategists led by Dubravko Lakos-Bujas and Marko Kolanovic.

In the first quarter, estimates for net-income growth -- excluding the energy sector and the impact of buybacks -- have been revised down to a decline of 1.9% from a year ago and are forecast to be 0.7% lower for the second quarter, the strategists said.

That would signal the onset of an earnings recession, or two quarters of back to back declines.  But first-quarter estimates “should be an easy earnings hurdle for S&P 500 companies to overcome,” the strategists wrote in a note Thursday.

Companies’ fundamentals have remained resilient, according to JPMorgan strategists, despite “macro and geopolitical headwinds, higher rates, ongoing supply shocks, stronger dollar and negative fiscal stimulus comps.” That’s been reflected in analysts’ earnings-per share forecasts, which have been marked up for the coming quarters despite the risk posed by rising interest rates and the war in Ukraine.

Of the 89 companies in the S&P 500 that have reported first-quarter results, 78% have beaten earnings estimates, according to Bloomberg Intelligence. 

Revenue growth is expected to remain above trend for the rest of the year between 8% to 10%, according to the JPMorgan strategists.

Yet they said “rising input costs should begin to manifest in lower net income margins for 2022” and may cause companies to guide earnings estimates lower. And weaker margins and rising debt costs may slow buybacks from the $1 trillion pace seen this year.

For 2022, the bank revised its S&P 500 earnings-per-share outlook from $235 down to $230, which would imply a 10% earnings-per-share growth year-over-year, the JPMorgan analysts wrote.

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