Results up, stock market down. Is the market afraid of a recession?

The season of publication of companies' results for the first quarter is slowly coming to an end. 79 percent companies with S & P500 index exceeded analysts' expectations, but in the current situation it is not enough to sustain growth.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

Is the market afraid of a recession?

Until the end of the previous week your the results for the first quarter of 2022 were presented by 434 companies from the S & P500 indexand 20 more companies will present their results. This shows a picture of a stable growth trend and the strength of the US economy. However, Wall Street looks to the long term with a possible recession and future deterioration on the horizon. Investors look much more closely at company reports for future sources of problems. Perception asymmetry strongly promotes negative information nowadays. Especially for companies whose stocks are considered expensive or overvalued. We observed it closely in the case of the two most spectacular discounts after the publication of the results, i.e. Amazona i Netflix. 

Most showed better results

For the results published so far - 79 percent companies from the S & P500 index recorded a profit above expectations. This is more than the long-term average (66%), but less than the results for the fourth quarter of 2021 (83,1%). Profits below expectations were presented by 17,7%. companies. Sectors in which most companies perform above expectations are: industry, consumer products (staples), IT, real estate and energy. The companies in the industry fared the worst in this respect luxury goods. 

 Profit growth is also solid, amounting to 9,3%. compared to the first quarter of 2021. However, this is less than the average annual increase in profits for the last 5 years - 15,6 percent. k / k. Currently, the energy sector remains an important source of profits (profit growth by 267,9% q / q), when it is excluded from the average, then the profit growth in Q2022 4,3 drops to XNUMX%. k / k. Higher inflation now allows firms to raise prices more freely, as can be seen from the high level of margins. On the other hand, inflation also generates pressure to increase costs and, above all, wages. 

Good results are not enough?

The S & P500 in the last 30 days, i.e. during the period of publication of the results, fell by 9,5%. And since the beginning of the year, the decrease has been 16,8%. However, it should be remembered that although there is currently a discrepancy between the fundamental data and the quotation, the fundamentals still remain the basis for the valuation of companies. Many companies, despite good results, are considered overvalued investors after 4 years of continuous growth. However, cheaper alternatives can still be found among these companies. It is still worth paying attention to cheap cyclical companies, as well as defensive companies that generate profits and dividends, regardless of the overall market situation.