Hot inflation slows 3Q earnings growth forecasts

Oct 6, 2022, 5:10 AM | Updated: 5:48 am

Wall Street expects the latest round of quarterly profits to show burn marks from the hottest inflation in four decades, and the damage could linger into 2023.

Analysts have been trimming their forecasts, especially in the retail and communications sectors, as inflation drives up costs and saps consumer spending on everything from food to clothing. Companies within the broad S&P 500 index are expected to notch earnings growth of roughly 2.6%, down from June projections of 9.5% growth. That would be the S&P’s slowest growth since the third quarter of 2020, according to an analysis from FactSet.

The technology sector is now expected to have contracted in the third quarter – a sharp revision from expected growth previously. Appliance maker Whirlpool, retail giant Target and many other companies could report even sharper declines in profits than anticipated months ago.

Other sectors have boomed in spite of inflation. Makers of household necessities managed to shore up or even increase profit margins by raising prices through the economic recovery as inflation heated up. Some even thrived on inflation to increase profits. Real estate investment trusts have maintained their generous profit growth forecasts since June. Forecasts have increased for energy companies because of high energy prices that have only recently started to ease.

Earnings growth for most companies remains precarious, though.

“The path of least resistance for the remainder of this year is still down,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “Most things are going against any kind of stabilization in earnings from these levels.”

Inflation has shown few signs of abating, although gasoline prices have fallen from historic highs.

Halting inflation could hurt certain industries. The Federal Reserve has aggressively raised interest rates to make borrowing more difficult and generally slow economic growth. The rate hikes have propelled mortgage rates higher, making the market even more difficult for homebuyers.

The U.S. dollar has strengthened significantly against other currencies and that cuts into their foreign earnings. Labor costs are also rising. Higher prices are becoming too burdensome for some consumers and prompting a drop in demand.

“It is just a matter of time before profit growth becomes the next risk for investors,” said John Lynch, chief investment officer for Comerica Wealth Management.

Profits will likely be flat for the broader S&P 500 in 2023 if the Fed can tame inflation without slowing the economy too much, Lynch said. But a broad drop in profits is possible if the economy slips into a difficult recession.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


A Boeing 737 Max suffered damage to parts of the plane's structure after it went into a “Dutch ro...

Associated Press

Plane that did ‘Dutch roll’ on flight from Phoenix suffered structural damage, investigators say

A Boeing 737 Max suffered damage to parts of the plane's structure after it went into a “Dutch roll” during a flight from Phoenix last month.

18 hours ago

This photo provided by Randy Shannon shows Mooney Falls on the Havasupai reservation outside the vi...

Associated Press

Dozens report illness after trips to waterfalls near Grand Canyon

Dozens of hikers say they fell ill during trips to a popular Arizona tourist destination that features towering blue-green waterfalls deep in a gorge neighboring Grand Canyon National Park.

2 days ago

Mugshot of Rudy Giuliani, who was processed Monday, June 10, 2024, in the Arizona fake electors cas...

Associated Press

Rudy Giuliani posts $10K cash bond after being processed in Arizona fake electors case

Rudy Giuliani, a former New York City mayor and Donald Trump attorney, was processed Monday in the Arizona fake electors case.

4 days ago

FILE - White House former chief of staff Mark Meadows speaks with reporters at the White House, Wed...

Associated Press

Former Trump chief of staff Mark Meadows pleads not guilty in Arizona fake elector case

Former Donald Trump presidential chief of staff Mark Meadows and Trump 2020 Election Day operations director Michael Roman pleaded not guilty Friday in Phoenix to nine felony charges for their roles in an effort to overturn Trump's Arizona election loss to Joe Biden.

8 days ago

deadly heat wave last summer...

Associated Press

After a deadly heat wave last summer, metro Phoenix is changing tactics

Fresh memories of the deadly heat wave last summer have led Arizona authorities to launch new tactics ahead of summer 2024.

18 days ago

A Yuma man has been arrested for allegedly starting a wildfire in a national wildlife preserve near...

Associated Press

Man accused of starting wildfire in national wildlife preserve in Yuma

A Yuma man has been arrested for allegedly starting a wildfire in a national wildlife preserve near the California border.

19 days ago

Sponsored Articles


Collins Comfort Masters

Here’s how to be worry-free when your A/C goes out in the middle of summer

PHOENIX -- As Arizona approaches another hot summer, Phoenix residents are likely to spend more time indoors.



Here are 5 things Arizona residents need to know about their HVAC system

It's warming back up in the Valley, which means it's time to think about your air conditioning system's preparedness for summer.


Midwestern University

Midwestern University Clinics: transforming health care in the valley

Midwestern University, long a fixture of comprehensive health care education in the West Valley, is also a recognized leader in community health care.

Hot inflation slows 3Q earnings growth forecasts