Analysts Raise Q3 and Q4 Estimates After Blowout Q2 Season

We are now past the halfway point of the second quarter earnings season. As results continue to come in ahead of expectations, analysts are looking to raise estimates for the rest of the year. 

“People were expecting earnings of about $182 on the S&P this year, that number is now about $193, and based on the numbers that were reported for Q1 and Q2, I think that number is still too low,” Howard Ward, Gabelli Funds CIO of Growth Equities, said on a recent podcast. 

More than half of S&P 500 companies have reported so far, of which 92% have met or exceeded estimates. Eighty-six percent have outperformed on revenue, which is the most since the first quarter of 2008, according to data from FactSet. Revenues are up 21%, which is an all-time high. 

Companies with significant outperformance include JPMorgan Chase, Apple and Exxon Mobil. Moderna, ViacomCBS and AMC Networks are among companies set to report later this week. 

“On the earnings front, most of the systemically important companies (companies that can move the broader market depending on the earnings results) are behind us, so while there are still many more companies to report results, the impact will be much more micro-economic than on the broader market,” wrote Tom Essaye in a recent note.  

Analysts have been insisting for months that the market is in a state of ‘peak everything’ and there is nowhere to go but down, yet economic indicators continue to inch higher. Third and fourth quarter estimates have been steadily rising as Q2 results continue to outperform.  

At the beginning of July, analysts estimated third quarter S&P 500 earnings to be up 24.7% in the third quarter. Last week, experts raised their projection to 28.3%. Similarly, for the fourth quarter, analysts raised expectations from up 17.3% to up 20.3%, according to FactSet data. 

“The 2022 expectation right now is too low, that’s around $212, we have several years of continued good earnings growth ahead of us, I believe. In real estate, they say ‘location, location, location,’ and with stocks, I would say ‘earnings earnings earnings,” Ward said. 

An economic slowdown will come eventually, experts agree, but the pace will still likely be above pre-pandemic norms. 

“When you look at the economic growth, as strong as it is this year, 7% or 8% GDP is probably more like 4% next year,” said Ward. “We’re already in an economy that has seen peak growth on a quarter to quarter basis, and is beginning to slow. Slowing growth is generally a good environment for growth stocks, and when you get beyond next year, we’re probably going back to GDP growth that has a handle on it of about 2%.” 

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