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Earnings Beat Isn’t Enough for S&P 500 Q3

Earnings Beat Isn’t Enough for S&P 500 Q3

The S&P 500 is up nearly 18% year-to-date, but the last four days have seen it decline ahead of Q3 earnings, which are full of economic recovery and supply chain complexities … and not even beating expectations is a guaranteed share price boost.

Q3 earnings season kicked off with the big banks, plus Delta Airlines, and by the end of this week, over 40% of the S&P 500’s financial sector will have reported. 

Earnings season for the 3rd quarter of this year kicks off with major financial companies

The first out of the earnings gate is JPMorgan Chase (NYSE:JPM), which reported quarterly profits  and revenues that beat expectations, thanks in part to losses from loans that came in lower than anticipated. 

But that didn’t help JPMorgan Chase’s share price. On Wednesday, following its earnings report, shares were trading down more than 2.5% just ahead of market close.

Third-quarter earnings season kicked off on Wednesday with JPMorgan Chase, which said that quarterly profit topped expectations following a boost from better-than-expected loan losses. Revenue for the largest U.S. bank by assets also came in higher than expected.

JPMorgan shares fell more than 2% following the report despite the strong earnings report. But that doesn’t tell the whole story. It’s been a stellar year for JPM, up over 28% YTD. 

BlackRock (NYSE:BLK), the emerging giant in the ESG space, also reported on Wednesday, and “organic growth” was the big buzzword. BLK posted a 9% annualized organic base fee growth, which makes this its sixth straight quarter of topping its 5% growth target. Q3 total net inflows were $75 billion, compared with $81 billion the previous quarter. Revenue beat the consensus at $5.05 billion, against $4.28 billion in Q2. 

Morgan Stanley and Bank of America are due to report on Thursday, followed by Goldman Sachs on Friday. 

There’s something different in the air, though, about Q3 earnings. Q2 earnings were notable for the “first” recovery earnings, but now with economic recovery underway, a new set of problems emerges, including supply chain hiccups and inflation. Auto industry stocks, big tech that relies on semiconductors amid a shortage, and manufacturers and retailers who can’t get enough goods together in time for the holiday season might weigh heavily on share prices, despite strong earnings. So, too, will soaring energy prices and labor shortages.

In other words, Q3 earnings are more about whether they can carry through to Q4, and that means that beating expectations this season isn’t necessarily enough. It will be about corporate guidance first and foremost.

The last quarter saw 88% S&P 500 earnings growth, but the Q3 growth estimates have been falling for weeks in the lead up to earnings reports. The headwinds aren’t exactly bullish.

"Supply chain disruptions and costs have been cited by the highest number companies in the index to date as a factor that either had a negative impact on earnings or revenues in Q3, or is expected to have a negative impact on earnings or revenues in future quarters," John Butters, vice president of FactSet, wrote in a note. 

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