Wall Street braces for earnings to get hit by inflation

Jan 4, 2023, 3:00 PM | Updated: Jan 5, 2023, 5:01 am
FILE - Traders work on the floor at the New York Stock Exchange in New York, Friday, July 1, 2022. ...

FILE - Traders work on the floor at the New York Stock Exchange in New York, Friday, July 1, 2022. Wall Street expects companies to face a reckoning with the realities of hot inflation, a slowing economy and rising interest rates in the latest round of earnings results. Analysts are forecasting an earnings contraction of about 3.5% for the fourth quarter, according to FactSet. That estimate, as of the end of last year, is an about-face from forecasts back in September of 3.5% growth and a sharp reversal from 8.5% growth forecasts in June. (AP Photo/Seth Wenig, File)

(AP Photo/Seth Wenig, File)

NEW YORK (AP) — Wall Street expects companies to face a reckoning with the realities of hot inflation, a slowing economy and rising interest rates in the latest round of earnings results.

Analysts are forecasting an earnings contraction of about 3.5% for the fourth quarter, according to FactSet. That estimate, as of the end of last year, is an about-face from forecasts back in September of 3.5% growth and a sharp reversal from 8.5% growth forecasts in June.

The dismal forecast for the fourth quarter follows is part of a trend of shrinking earnings growth throughout 2022 as inflation tightened its grip on consumers. Spending remained strong in many retail areas and companies raised prices on everything from food to clothing to offset the impact of higher raw material costs and inflation in general. Many companies went further than just maintaining profits and increased their profit margins.

Corporate profits, though, aren’t likely going to continue bucking an economy that showed clear signs of damage during the fourth quarter, particularly with consumers increasingly cutting back on spending. Many analysts have been forecasting that the economy will slip into some level of recession in 2023 and company profits are starting to reflect that. The Federal Reserve’s aggressive fight against inflation carries the risk of slowing the economy too much.

Morgan Stanley, in a December report, warned investors to brace for a rough round of corporate earnings in the coming month and into the rest of 2023.

“The fixation on inflation and the Fed continues, but markets appear to have moved past it and onto the real concern– earnings growth/recession,” the report said. “Rates and inflation may have peaked but we see that as a warning sign for profitability, a reality we believe is still underappreciated but can no longer be ignored.”

Analysts expect communications companies and technology firms to be among the biggest losers during the fourth quarter. Lower demand has been cutting into technology product sales and that has in turn led to warnings from chipmakers and other companies. Computer maker HP and chipmaker Micron have both announced job cuts as a part of their plans to deal with weaker demand. Analysts are forecasting a slight earnings contraction for both companies.

The weakening economy has cut into advertising budgets, which have raised concerns for companies including Facebook and Google. Retailers and other companies that rely on discretionary spending are also expected to get hit hard in the fourth quarter.

Analyst expect energy companies to keep powering past other sectors as the big earnings winners during the fourth quarter. The sector has outperformed all others in 2022 amid higher oil and natural gas prices.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

The Amazon DTW1 fulfillment center is shown in Romulus, Mich., April 1, 2020. Amazon reports financ...
Associated Press

Amazon beats Q4 revenue estimates, but profits slump

Amazon on Thursday reported worse-than-expected profits, but its revenue beat expectations boosted by sales in North America businesses and the cloud-computing unit AWS.
8 hours ago
legislature...
Associated Press

Washington’s low-income tax credit available for first time

 Up to $1,200 is now available for thousands of low-income working Washington residents, thanks to a 2008 law that has finally been funded.
8 hours ago
Associated Press

California weighs making flag football a girls’ school sport

California officials are considering a plan to make flag football a girls’ high school sport amid soaring popularity of the game and a push to get more female athletes on the field. The federated council of the California Interscholastic Federation — the statewide body that governs high school athletics — is expected to vote Friday […]
1 day ago
New Mexico Gov. Michelle Lujan Grisham delivers her State of the State address on the opening day o...
Associated Press

New Mexico legislators may block local abortion ordinances

SANTA FE, N.M. (AP) — A standoff over abortion in politically conservative regions of New Mexico is looming as Democratic state legislators present a bill that would prohibit local governments from interfering with women’s access to reproductive health care. The initiative from state House Democrats responds to abortion restrictions recently adopted in two counties and […]
1 day ago
This photo provided by the Dallas Zoo shows emperor tamarin monkeys Bella and Finn at the zoo on We...
Associated Press

Police: Man arrested in taking of monkeys from Dallas Zoo

DALLAS (AP) — A 24-year-old man has been arrested in the case of the two monkeys taken from the Dallas Zoo after he was spotted near the animal exhibits at an aquarium in the city, police said Friday. Davion Irvin was arrested Thursday and was charged with six counts of animal cruelty, Dallas police said. […]
1 day ago
FILE- In this Feb. 14, 2018, file photo the logo for Alphabet appears on a screen at the Nasdaq Mar...
Associated Press

Big tech roils markets after shaky quarterly performances

Wall Street has its eyes on big tech after some of the biggest companies in the world posted lackluster quarterly financial performances. That included Apple Inc. The company posted its first quarterly revenue drop in nearly four years after pandemic-driven restrictions on its China factories curtailed sales of the latest iPhone during the holiday season. […]
1 day ago

Sponsored Articles

safety from crime...

As crime increases, our safety measures must too

It's easy to be accused of fearmongering regarding crime, but Seattle residents might have good reason to be concerned for their safety.
Comcast Ready for Business Fund...
Ilona Lohrey | President and CEO, GSBA

GSBA is closing the disparity gap with Ready for Business Fund

GSBA, Comcast, and other partners are working to address disparities in access to financial resources with the Ready for Business fund.
SHIBA WA...

Medicare open enrollment is here and SHIBA can help!

The SHIBA program – part of the Office of the Insurance Commissioner – is ready to help with your Medicare open enrollment decisions.
Lake Washington Windows...

Choosing Best Windows for Your Home

Lake Washington Windows and Doors is a local window dealer offering the exclusive Leak Armor installation.
Anacortes Christmas Tree...

Come one, come all! Food, Drink, and Coastal Christmas – Anacortes has it all!

Come celebrate Anacortes’ 11th annual Bier on the Pier! Bier on the Pier takes place on October 7th and 8th and features local ciders, food trucks and live music - not to mention the beautiful views of the Guemes Channel and backdrop of downtown Anacortes.
Swedish Cyberknife Treatment...

The revolutionary treatment of Swedish CyberKnife provides better quality of life for majority of patients

There are a wide variety of treatments options available for men with prostate cancer. One of the most technologically advanced treatment options in the Pacific Northwest is Stereotactic Body Radiation Therapy using the CyberKnife platform at Swedish Medical Center.
Wall Street braces for earnings to get hit by inflation