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Q1 2022 S&P 500 (NYSEARCA: Spy) The earnings reporting season is set to kick-off in about a week JP Morgan Chase (NYSE: JPM) And some of the other big banks report their earnings. Although the data promises there is an underlying weakness in the market that we are very wary of. Inflation and supply chain disruptions are reportedly worsening in the wake of the Ukrainian aggression, and the high price of oil is the only evidence we really need to support.
Oil (NYSEARCA: XLE) An initial input cost at such a level makes us wonder how we can survive without the fuels, lubricants, resins and biochemicals we use to make almost everything on the planet. The good news is that growth and acceleration of revenue growth are still expected for the latter half of the year, the bad news is that the near-term headwinds are stronger than previously expected and will keep the market in check if not subsequently downward. Two months.
The outlook for revenue growth is weak
Analysts are still expecting revenue growth for the S&P 500, and consensus for Q1 growth has been even higher in recent weeks, but that’s just the end of the good news about earnings expectations. Although consensus for Q1 has grown over the past few weeks, it has fallen below the decimal point two weeks before the start of the season and has been mostly flat over the past few months. The real way is that almost all the growth is due to the single sector, the energy sector. At the moment, there are 7 sectors where the revenue outlook is declining and 4 sectors are expecting revenue decline where the energy sector is expected to grow after 165%.
Digging deeper, the consensus estimate for the energy sector is growing in line with rising oil prices. The consensus reported by Factset has increased by 8000 basis points in the last 3 months which is to say, because at that time the consensus for the broad index was flat. While revenue expectations for the energy sector continue to grow strongly, the outlook for each other is getting worse or worse.
Looking ahead, the consensus for Q2 is also growing but it is primarily due to the energy sector and it also goes to full year consensus. The consensus for the calendar year 2022 has grown over the past few weeks due to an improvement of 4000 basis points in the outlook for the energy sector.
What we expect for the Q1 reporting cycle
We expect that the performance of the energy sector will lead to consensus estimates and markets. What we expect to see from the rest of the index is the impact of supply chain constraints and inflation. The two headlines may offset each other, but the revenue and / or earnings may be weaker than expected and may put downward pressure on the index. The news that the market will drive, however, will be the outlook for Q2 and the year. Any negative pressure on the earnings outlook will put pressure on the index and limit it if it does not go down.
Technical Outlook: Beware of the double-top on the S&P 500
The near-term technical outlook for the S&P 500 is bullish but we are at the top of all-time highs. Price action is above the long-term initial trend established in 2009-2012 and is suitable for consolidation or correction. If the indicator moves to an all-time high and ensures resistance at that level, a double top will be in play. Our best case scenario is that the indicator will change its trend sideways in the range of 4,100 to 4,700 until it returns to the initial trend line. Our worst case scenario, in which the earnings outlook is a big hit in this reporting cycle, is that the index will fall below 4,100 and in the worst case return to the trend line with the possibility of hitting 2,800 or below.