S&P 500 Earnings Report: Q2 2022
The following report analyzes the economic and GAAP earnings for the S&P 500 and its sectors based on financial filings through the second quarter of 2022.
As earnings for the S&P 500 continue to drop, investors are closely watching to see how this trend will play out. So far, it seems that the earnings decline is only happening on a quarter-over-quarter (QoQ) basis, but it remains to be seen if this trend will continue. Based on the latest audited financial data, it appears that the earnings decline began in the first quarter of this year.
It's no secret that the stock market has been on a tear in recent years. But a new report from Standard & Poor's suggests that the good times may not last forever. According to the report, the S&P 500's economic earnings (which strip out one-time items and focus on underlying trends) are set to decline in the second quarter of 2022.
I believe that economic earnings provide a more accurate portrayal of a business's true underlying cash flows than GAAP earnings. I think that reports on the drivers of economic earnings are very important, and I encourage people to check them out.
Economic Earnings Fall in 2Q22
Despite a slight dip in earnings in the second quarter of this year, overall economic and GAAP earnings remain near their highest levels in over a decade. This is good news for the overall health of the economy, as strong earnings are often indicative of a thriving business environment. It is also a positive sign for stock market investors, as companies with strong earnings typically see their stock prices rise over time.
A rising WACC is a major headwind facing economic earnings. Inflation boosts GAAP earnings, but these gains are erased in economic earnings by a higher cost of capital. Investors can protect themselves from such false signals by paying closer attention to economic earnings, which accounts for the effects of expected inflation on a firm’s WACC.
Key Details on Select S&P 500 Sectors
The economic outlook for the S&P 500 sectors is looking increasingly bleak, with eight out of eleven seeing a decline in earnings in the last quarter. This trend is likely to continue in the coming quarters, putting pressure on stock prices and corporate profits.
The Energy sector saw the largest QoQ improvement in economic earnings, which rose from $38.5 billion in 1Q22 to $86.0 billion in 2Q22. This sector is expected to continue to grow in the coming quarters as the global economy recovers.
The technology sector has always been a powerhouse in terms of economic earnings, but its recent performance has been lackluster. In the second quarter of 2022, the sector's economic earnings fell by 4% compared to the previous quarter. This is in contrast to the utilities sector, which saw a decline in economic earnings in the same quarter.
Looking at the healthcare sector, it's clear that earnings have been improving quarter over quarter. This is good news for the industry, and it's likely that this trend will continue in the future. This is good news for investors and consumers alike, as it means that the healthcare sector is stable and growing.
Sample Sector Analysis: Healthcare
The healthcare sector is booming, with earnings rising 26% year-over-year in the second quarter of 2022. GAAP earnings are up a whopping 41%, indicating that this sector is healthy and growing. This is good news for the economy as a whole, as healthcare is a critical sector.
It's clear that healthcare earnings are outpacing those of GAAP, and this trend is likely to continue in the future. Healthcare companies are doing a better job of managing their finances and controlling costs, which is translating into better earnings.
Looking at the data, it's clear that the economy is on an upswing. This is good news for businesses and consumers alike. With earnings on the rise, businesses will have more money to invest in growth and expansion. And consumers will have more money to spend on goods and services.
The August 12, 2022 measurement period incorporates the financial data from calendar 2Q22 10-Q, as this is the earliest date for which all the calendar 2Q22 10-Qs for the S&P 500 constituents were available. This gives us a clear picture of the financial state of the S&P 500 companies as of the end of 2Q22.
Looking ahead, we believe that the market has potential to continue growing, albeit at a slower pace than we have seen in recent years. We expect that disclosure practices will continue to improve, making it easier for investors to make informed decisions.
The methodology used to calculate the results in this appendix are as follows: 1.
I believe that the "Aggregate" methodology for calculating economic earnings and GAAP earnings is the best approach. This method allows for the accurate summing of the Trailing Twelve Month individual S&P 500 constituent values for each sector. This ensures that each sector is accurately represented in the data.
The Aggregate methodology is a great way to get a comprehensive look at the stock market, regardless of a company's size or index weighting. This method of calculation is also how S&P Global (SPGI) determines metrics for the S&P 500.