The US results are for the December 2021 quarter, and the aggregate earnings growth rate (compared to the same quarter a year earlier) is sitting at close to 30 per cent. That will mark the fourth consecutive quarter above 25 per cent.
We're still playing catch up from the weakness of 2020, which makes those big numbers a little misleading. They're being compared with a very difficult period, which makes the rate of change look artificially high.
Things are expected to normalise this year. Overall, the S&P 500 is expected to see aggregate earnings increase by 8-9 per cent in the 2022 calendar year, compared with 2021.
On a less upbeat note, commentaries about the future have become a little more cautious, which has seen the US analyst community pare back estimates slightly for the upcoming period.
I think we'll see something similar locally. Results should be solid, if unspectacular.
The New Zealand economy was in great shape through the back half of last year. Unemployment was low, consumers were upbeat, house prices were rising strongly and despite the ongoing restrictions, confidence was generally riding high.
Dairy prices trended consistently higher, while the NZ dollar fell in the latter months of the year, adding support to the export sector.
A lack of profit warnings is also comforting. We've seen a few since the summer break, but they've been largely unsurprising.
Travel company Serko has suffered from the ongoing border closures, while NZ King Salmon and Sanford have continued to struggle amidst company-specific issues.
Last month's negative announcement from The Warehouse is perhaps the most telling, providing a clue to what we might hear more about in the coming weeks.
Headwinds are increasing in 2022. Inflation is high, which takes money out of people's pockets. At the same time, interest rates are rising, increasing borrowing costs and crimping disposable income further.
Some heat is expected to come out of the property market, which will dent confidence and slow activity as the wealth effect works in reverse.
Businesses won't be immune to this, and we should watch for signs of margin pressure due to rising costs.
Many companies have been able to pass these on through prices increases in the last year, without any major impact on customer demand. That might get a little harder from here.
Consumers are facing rising costs from all angles, as well as falling real incomes (with the cost of living rising more quickly than incomes) and this next phase of the cycle could unearth those businesses with genuine pricing power, and expose those without it.
On balance, I think this earnings season should be solid, with results reflective of an economy that's been in very good shape.
With our market about ten per cent below its January 2021 peak and having flatlined for much of the past year, share prices aren't setting the bar unreasonably high either.
However, outlook commentaries could take on much more importance than usual, given the changing backdrop and the increasing headwinds looming in the year ahead.
Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.
