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JPMorgan will release its first-quarter results on Wednesday to kick off the US season. Banks are set to be hit by a slowdown in corporate transactions, while energy is set to rebound thanks to a surge in crude prices.

Wall Street lowered its expectations heading into the quarter, but U.S. companies are expected to break their “last big beat for a while,” Bank of America analysts said.

Top and bottom lines

The S&P 500 is expected to show “blended” growth — a mix of actual and expected earnings per share — of 4.5% in the first quarter from a year ago, data provider FactSet said.

Tough comparisons a year ago and a number of macroeconomic disruptions, including inflation and supply chain bottlenecks, have been blamed for what may be the highest EPS growth rate slow since the fourth quarter of 2020.

However, blue-chip U.S. companies often beat dismal initial estimates and, based on the average beat rate of the past five years, FactSet expects earnings could rise 12.8% in the first three. months of the year. This would mark the fifth straight quarter of double-digit earnings growth.

Revenues are expected to rise 10.7%, driven by the energy, materials and real estate sectors.

Energy

Energy is expected to dominate the S&P 500 sectors as soaring oil prices boost revenues and profits. The energy sector is expected to report profit growth of 252.6%, while revenues are expected to rise nearly 45% from a year earlier, supported by a 33% rise in crude prices.

Oil prices have been volatile following the February 24 invasion of Ukraine. Brent, the international oil benchmark, jumped to nearly $140 a barrel last month, only to give up some of those gains after the United States announced it would release emergency reserves. Further Covid-19 lockdowns in China have raised the prospect of weakening demand for oil.

Bar chart of revenue growth (%) showing that energy will show the highest sales growth thanks to higher crude prices

finance

The financial sector is expected to record a 25.7% profit decline, led by banks, where analysts have forecast a 36% decline in EPS.

Banks are expected to report a slowdown in investment banking revenue, after stimulus and markets supported an increase in M&A activity and IPOs last year. John Butters of FactSet noted that banks are expected to report higher provisions for loan losses, which will dampen growth.

Inflation

Inflation is expected to be a headwind for businesses in the first quarter of fiscal 2022. Of the 20 S&P 500 companies that reported results, FactSet said nearly two-thirds cited labor costs and shortages. -work as weighing on the results. Pandemic-related expenses and supply chain disruptions were also mentioned as negative contributors.

However, companies continue to raise prices to offset inflationary cost pressures. Many large consumer groups passed on rising input costs to consumers by raising the prices of their products in the fourth quarter of 2021.

Investors will be watching for any comments from management on the impact of the war in Ukraine, which could fuel inflationary pressures. FactSet noted that 13 of the 20 S&P 500 companies that reported results mentioned Ukraine, but only five said the war had hurt their business.

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