Jul 12, 2022 - Economy

Energy companies will drive second-quarter earnings growth

Expected percentage change in earning-per-share growth for S&P 500 sectors
Data: Credit Suisse; Chart: Baidi Wang/Axios

Giant profits at energy companies are expected to be the key driver of S&P 500 earnings growth in the second quarter.

Driving the news: We're about to start receiving a fresh flurry of corporate financial disclosures, laying out how firms did in the quarter that just ended.

The big picture: The Fed's rate hikes, China's lockdowns and the energy crisis are all weighing on the economy.

  • Profit growth is expected to slow down a bit, but it shouldn't be particularly ugly — at least for the S&P as a whole.
  • Earnings per share — the key gauge of profits on Wall Street — for S&P 500 companies are expected to be up by between 5% and 6% overall.

Yes, but: Under the hood, you can see that EPS is only heading up because of gobsmacking growth in the S&P 500's energy sector.

  • According to Credit Suisse analysts, EPS for the index's energy companies will be up a tidy 243% in the second quarter, compared to last year, thanks to exploding oil and gas prices.
  • The kicker: Excluding energy companies, S&P profits would actually be down nearly 3%.

Our thought bubble: Don't make too much of this. It's not unusual that companies in one booming industry contribute more than their fair share to the profit picture. (See tech firms in 2020, for instance.)

  • In fact, it's expected. That's why your investment portfolio should be broadly exposed to a panoply of industries.
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