Inflation fears run high as U.S. firms set to post earnings

U.S. companies will post results in the coming weeks on the final quarter of 2021 as investors worry about inflation's impact on earnings and pressure on the Federal Reserve to speed up the timeline for kicking off interest rate hikes. The concerns, along with caution tied to the fast-spreading COVID-19 Omicron variant, have driven a recent market sell-off, led by Nasdaq and shares of technology and other big growth companies that have benefited from low interest rates.

Year-over-year profit growth for S&P 500 companies is expected to be lower in the fourth quarter than it was in first three quarters of 2021 but still strong at 22.4 per cent, according to IBES data from Refinitiv.

Huge profit gains earlier in 2021 were fuelled by a rebound from the economic downturn in the early days of the pandemic.

It's “nearing the end of the very easy comparisons that we had relative to 2020,” said Bill Northey, senior investment director at U.S. Bank Wealth Management. “Those easy comparisons will begin to wane as we move into 2022.”

Last year's strong market performance — with the S&P 500 gaining 26.9 per cent for the year — was on the back of massive profit growth, so corporate outlooks for 2022 will be key this earnings period, Northey said.

Earnings growth for all of 2021 is estimated at about 50 per cent compared with 8.6 per cent for 2022, while the forward price-to-earnings ratio for the S&P 500 was last at 21.7, compared with its longterm average of 15.5, according to Refinitiv DataStream.

JPMorgan Chase reported on Friday, kicking off the reporting period along with Citigroup and Wells Fargo.Heading into earnings season, bank shares have rallied with U.S. Treasury yields as focus has turned to rate hike expectations.