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Why earnings estimates could plunge this week

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Sofi Head of Investment Strategy Liz Young on why summer earnings may hit a rough patch.

Video Transcript

ALEXIS KEENAN: The rubber really hits the road next week. Next week alone, I think there's 168 S&P components reporting. It's more than 33% of the entire index. So by the end of next week, we're going to have a really good gauge of where earnings are this season. So far, companies are still beating.

Now, look, they always beat, right? Unless we're in the middle of some kind of earnings contraction, companies usually beat. That's just how this works. I don't know why. But they're beating by about 4%. So we call it a surprise, right? So a positive surprise is about 4%. I don't know. I don't have that factored in for whatever has happened today, but 4%. On average, that number is about 9% or 10%, OK? So we're still beating, but beating by a lower than average.

What I think we might hear next week-- and these are companies across a lot of different sectors. We're going to hear from a number of consumer companies. We're going to hear from transportation companies. And what I mean by that, like UPS, right? We're going to hear from companies like that. We'll hear from some industrials, some materials companies, tech companies.

And the ones that are goods sensitive, meaning the ones that make stuff, the ones that make widgets and sell it to people, are the ones where you're probably going to hear about inflation having squeezed their profit margins, and that they had to absorb it, instead of pass it all along to customers. And we're going to hear everybody's outlook for the rest of the year and maybe into 2023.

So if earnings are going to come down, if earnings estimates are going to come down, they're going to really start coming down next week, and then the week after. So that's definitely something to watch. It's another reason why I keep saying, let's wait through the end of July. Because we've got so much happening next week, it could be a real whipsaw week. We've got so many earnings. We've got a Fed meeting. And we've got GDP.