About 99% of all S&P 500 companies have reported fourth quarter earnings and the results aren't great.
Companies listed in the S&P 500 index beat analysts' earnings estimates by an average of just 1.3% last quarter. For context, that's way down on the index's 5-year average of 8.6%, according to FactSet data.
What's happening: There have been some steep and disappointing profit misses as corporate America feels the sting of sticky inflation and the Federal Reserve's interest rate hikes.
Tech companies fared poorly this season: Apple recorded a rare earnings miss while Intel and Google-parent company Alphabet also fell short of expectations.
But it wasn't all doom-and-gloom. Energy companies brought in yet another quarter of record profits, with Big Oil companies — such as Chevron, ConocoPhillips, Exxon and Shell — notching their most profitable years in history. Elsewhere, Tesla reported record revenue gains and beat earnings expectations. Big box retailers Target and Walmart also surpassed estimates as US consumers kept on spending.
Here's what else traders need to know about the final few months of last year and beyond.
Corporate profits could drop for the first time since 2020
S&P 500 companies are on track to report a 4.6% drop in earnings year-over-year, according to FactSet data. That would mark their first earnings decline since the third quarter of 2020, when Covid shut down large swaths of the economy.
Gloomy forecasts abound
About 81 S&P 500 companies have issued negative earnings-per-share guidance for the first quarter of 2023, according to FactSet. That's a lot higher than the 23 companies reporting positive guidance.
There was no shortage of foreboding forecasts from top execs on earnings calls this season.
Walmart beat estimates last quarter, but they also lowered expectations for future earnings.
Home Depot CEO Ted Decker said he was concerned that consumers were becoming less resilient to the economy. "We noted some deceleration in certain products and categories, which was more pronounced in the fourth quarter," he said on an analyst call.
Lowe's executives, meanwhile, warned that they were preparing for a "more cautious consumer" this year.
Investors feel like celebrating
Wall Street traders appear to be taking this dour earnings season in their stride. The market is "rewarding positive earnings surprises more than average and punishing negative earnings surprises much less than average for the fourth quarter," reports FactSet.
Inflation is (still) a big deal
More than 325 S&P 500 companies have cited the term "inflation" during their earnings calls for the fourth quarter. That's well above the 10-year average of 157, according to FactSet document searches.
But the worries over price hikes appear to be waning, at least a little bit. This marks the lowest number of S&P 500 companies using the "I"-word on their calls since the third quarter of 2021. Since last quarter, the number of inflation mentions has fallen by about 20%.
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