War: Impact on Earnings

For the past month, investors have been focused on the war on Ukraine and the economic impact of sanctions. As the first quarter wraps up this week, we get to review the impact current developments around the world have had on the most important driver of stock prices over the long-term: earnings.

The corporate earnings outlook has been relatively stable despite the backdrop of war in Ukraine. Although the unofficial start of the earnings reporting season is still a couple of weeks away, there is the potential for market moving news ahead of these announcements. The weeks around the end of the quarter often see companies who expect to fall short of their earnings targets downwardly revise their guidance. So far, the changes in first quarters’ earnings estimates have been modest.

Earnings-per-share growth in 2022 for companies around the world (as measured by the MSCI All Country World Index) is now expected by FactSet analysts’ consensus to be up 6% this year. Prior to the invasion, the consensus was at 7%, a difference of only 1%. Higher post-invasion forecasts in the energy, materials and industrials sectors partially offset modest declines across other sectors.

Pre- and post-invasion 2022 EPS estimates

Source: Charles Schwab, FactSet data as of 3/25/2022. Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data.

Geographically, earnings per share estimates for 2022 show that the rising trends in the U.S., U.K., and Japan have not changed much this year. Despite Europe’s proximity to the conflict and dependence upon Russian energy supplies, earnings growth is still expected to be higher than it was at the start of the year, though lower by about 1.5% from pre-invasion levels.