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Current Insights

To view the 2022 Client Appreciate Webinar, Hosted by Capital Group; please click on the link below.

Stern & Heatwole's 2022 Client Appreciation Webinar

At the top line, inflation dropped across the board on a year-to-year basis, coming in below expectations. On a month-to-month basis, we saw either stability or declines. Looking at the individual components, we saw continued moderation in the most damaging areas, energy and food. Goods prices actually showed disinflation, and some of the weirder components (health insurance, in particular) did the same. Even housing, the remaining main inflation contributor, pulled back a bit. The improvement in the numbers was widespread, and that is a good signal inflation will continue to decline.

Softer Inflation Number a Win for Economy
Nov. 10, 2022

When you look at expectations for corporate earnings for the third quarter, you get a bunch of mixed messages. On one hand, the economy is (supposedly) sinking fast, hit by rate hikes and inflation. More, companies are struggling with the labor shortage, with wages rising sharply and, in many cases, labor simply not available. Between a slower economy and a labor shortage—not to mention the problems created by the strong dollar—you would expect earnings to take a sharp hit. Indeed, we have seen a number of downward revisions to analyst expectations. On the other hand, despite the lower expectations, earnings are in fact still expected to grow, which doesn’t seem consistent with the narrative at the economic level. What’s going on?

What Will Q3 2022 Earnings Look Like?

Inflation: It's Not an Isolated Problem

While identifying today’s problem is easy (inflation, anyone?), the difficulty I face is that it is not an isolated problem. Rather, it is directly connected to everything going on right now and everything I’ve discussed in previous years. I have the opposite challenge this year, not of connecting a problem to the rest of the world but of taking a problem that is already connected and identifying the critical elements—and removing those that are not critical.