2022 has been a difficult year for investors offering limited opportunities for positive returns. After rising nearly 27% in 2021, the S&P 500 index has retreated 24% year-to-date. Uncertainties abound as persistent inflation is met with increasingly restrictive monetary and fiscal policy and geopolitical risks loom large.

US corporate earnings, however, have proven resilient thus far. With second quarter results officially on the books, we are preparing for the start of third quarter earnings season as management teams begin reporting financial results later this month. In this article, we will share data and our observations around (1) sector-specific earnings growth trends, (2) earnings surprises in the most recent quarter, and (3) forward earnings growth expectations.

Earnings Growth by Sector

In the 12 months ended June 30, 2022, S&P 500 earnings grew 8.5% compared to the 12 months ended June 30, 2021. Earnings growth levels were widely dispersed across sectors over the last year, ranging from declines of 20% for communication services and financial companies to growth of nearly 300% for energy companies. Excluding energy, earnings contracted 2.5% over the last 12 months despite growth reported in seven of eleven sectors.

Over the next 12 months, aggregate earnings growth is expected to slow marginally to around 6%. Analyst forecasts call for several sectors to reverse trend from the prior year. In particular, energy companies, which have benefitted from higher prices and a rebound in demand, are anticipated to experience earnings declines of nearly 30% in the year ahead – weighing heavily on the overall growth prospects of the index. Excluding the energy sector, earnings are projected to grow more than 10% over the next 12 months.


Looking at calendar year 2022, which consists of actual reported results for the first half of the year and estimates for the second half of the year, growth expectations have diminished somewhat since the start of the third quarter. At 8.3%, earnings growth in 2022 is tracking 1.6% lower than it was three months ago, pulled down by communication services, consumer discretionary, and technology companies, but buoyed by stronger expectations for energy. This ties closely to realized sector returns in the second half of 2022, with communication services stocks lagging (-5.9%) and energy stocks among the leaders (+8.9%) as of this writing.

Earnings Surprises

As of this writing, 498 S&P 500 constituents have reported earnings for the second quarter of 2022. Of these companies, 77.5% reported earnings above analyst expectations and 17.9% reported earnings below analyst expectations. In a typical quarter (since 1994), 66% of companies beat estimates and 20% miss estimates. Over the past four quarters, 81% of companies beat estimates and 16% missed. In aggregate, companies are reporting earnings that are 5.5% above estimates, which compares favorably to a long-term (since 1994) average surprise factor of 4.1%. The average surprise factor over the prior four quarters was 9.5%.

This year has been marked by a collapse of confidence among investors, consumers, and business leaders. In light of relatively high “beat rates” we have to wonder if negative sentiment isn’t weighing more heavily than it should on forward guidance and earnings expectations.

Forward Expectations

In light of the year-to-date equity selloff and rapid decline in sentiment, one might assume that earnings expectations for the coming years would be bleak. While risks have arguably risen and forward estimates have declined marginally, consensus forecasts have actually proven fairly resilient so far. As of this writing, S&P 500 earnings are projected to grow 8.3% in 2022, 8.0% in 2023, and 8.1% in 2024. Holding valuation multiples constant, this would imply equity returns of approximately 10% over the next few years after incorporating dividend income. Of course, forward estimates are revised frequently and are only a guess at what will actually happen.



Looking at valuation multiples, the S&P 500 index is currently trading at 16.7x next 12 months earnings. This is below the five-year average of 18.6x and also below the ten-year average of 17.0x, but above the 15.8x recorded at the end of the second quarter.


Despite myriad risks that have dealt a blow to sentiment and pressured equity markets, corporate earnings estimates for the coming years have remained solid. Directionally, one might argue that 2022’s selloff has come in anticipation of downward earnings revisions that might accompany a recession. Conversely, if a recession is avoided or is relatively mild, today’s forward earnings expectations may provide a tailwind for stocks to move higher.

As always, the investment solutions we build for clients are constructed with business cycles, recessions, geopolitical conflict and even black swan events in mind. It is our fundamental belief that maintaining discipline during periods of uncertainty is the most reliable course for growing and preserving wealth. Thank you for your continued support of Greenleaf Trust and for the opportunity to serve on your behalf.

Source: I/B/E/S data from Refinitiv