Investors should expect more earnings misses and weak guidance as companies struggle with slowing demand and looming recession risk, Bank of America says
- Bank of America analysts are expecting a weak
earningsseason as result start rolling in this week.
- Companies are facing headwinds from
inflation, recession fears, and a strong dollar.
Investors should brace for this earnings season to disappoint, Bank of America said, as companies struggle against low
"All of the macrobarometers we track that tend to lead to earnings results are pointing to a miss," BofA analysts wrote in a note on Tuesday, warning that investors have "lots of reasons to be concerned."
The number of companies reporting weak demand nearly doubled in the first quarter of this year, they said, and sales are now also facing strong
Meanwhile, fears of a looming recession are starting have an impact. Corporate sentiment has fallen to its lowest level since the start of the pandemic. Reports of layoffs saw a big jump in June, with analysts expecting the trend to continue.
For specific sectors, Bank of America warned that tech may not be as defensive as investors believe, and that the sector's stable earnings results in the last two recessions may not hold in the next downturn.
"[Mega-cap] Tech companies could now face the biggest challenges amid de-globalization," the analysts wrote, pointing to weakening outlooks in the software, semiconductor, internet, and hardware industries.
The sectors most likely to outperform, according to the bank, are real estate, materials, and energy.
Although earnings per share for the S&P 500 are still expected to clock in at $55.35, in-line with the bank's expectations, that figure will be challenged and come down significantly by 2023, by at least $20 a share, analysts wrote.
The bank added that its guidance ratios had dropped during the month of June. The three-month guidance ratio, a measure of companies that have predicted increased earnings in the following quarter, fell 60% in June. Additionally, the three-month Earnings Revision ratio, a measure of companies making a positive earnings revision, fell by 100% that same month.
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