The second quarter of 2022 proved to be a challenging environment across public markets. Regardless of geography, sector, or factor exposure, both equities and fixed income posted negative performance during the quarter. More than two-thirds of companies reported positive EPS and revenue beats during the most recent earnings season, but there was a focus on lower than expected forward-looking guidance, as companies highlighted the difficult task of expanding their margins while maneuvering around residual supply chain issues, elevated raw material and wage costs, with demand for their products/services potentially beginning to soften.

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Markets receded in the first quarter of 2021, with the most severe pullbacks experienced within growth-oriented sectors such as technology, healthcare and communication services. Isolating just the Nasdaq, from its peak in mid-November 2021 to its trough in mid-March 2022, it experienced a pull-back of -21% compared to the S&P 500 down -10% over this same timeframe, with many instances of underlying companies that were previously COVID beneficiaries retracing back to pre-COVID levels as the market sharply re-adjusted expectations for future growth.

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Reflecting on the Q3 2021 earnings season, a common theme was observing companies posting top-line revenue beats, though some missing expectations on bottom-line earnings-per-share (EPS) and providing slightly softer guidance on future growth as many of the companies noted continued challenges with supply chain disruptions, persistent raw material inflation, and ongoing labor shortages.

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The quarter began with a strong earnings season with Q2 2021 reported earnings above expectations. The S&P 500 posted Q2 2021 earnings growth of 62.5% YoY, yet despite the strong numbers, one of the key reasons was due to easier comps versus Q2 2020 during which the sharpest decline of company growth took place shortly after the pandemic began.

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