What's going on?

Data suggests US companies are bracing for a blow to profit this earnings season.

What does this mean?

Earnings season is just around the corner, and the outlook for US businesses isn’t too hot right now: with recession fears and cash-strapped customers holding back demand, companies are seriously feeling the pinch. Add increasingly expensive raw materials and borrowing costs to the mix too, and you’ve got the perfect recipe for skinny margins and underwhelming profit. No wonder Wall Street’s earnings forecasts fell by more than the past five-year average last quarter, with more and more companies sounding the profit-warning alarm. All things considered, S&P 500 companies are expected to report a 6.8% dip in earnings last quarter compared to the same time the year before � the biggest drop in profit since the early days of the pandemic, when lockdowns triggered a plunge of over 30%.

Why should I care?

For markets: Picking up the slack.
With such a gloomy outlook, you might wonder why the stock market isn’t having a minor meltdown: instead, the S&P 500 has increased by over 7% since the start of the year. But take a closer look, and a different picture emerges. Nearly 90% of that rise was down to the success of just 20 firms � many of them big technology companies � whose brawny share prices have masked the frailty of their peers.

The bigger picture: Don�t be hasty.
Sure, most industries are set to shrink, but hospitality-related industries, travel, and energy seem to be on track for profit growth. That doesn�t mean you should start overhauling your portfolio lickety-split, though: remember, these are just expectations � and stocks� performance from here on out will depend on how they stack up against the cold, hard reality. And nothing�s a sure bet right now, with analysts warning that the fallout of recent bank failures could spill into next quarter too.