Stock market investors are gearing up for the busiest week of earnings season. This is how it stacks up so far.

The profit bar was set high last year as the global economy reopened from its pandemic-induced state. “Fast-forward to this year, earnings face tougher year-over-year comparisons. Add in the heightened risk of a recession, still-high inflation and an aggressive Fed tightening cycle, and it’s no surprise that the sentiment surrounding the current 3Q22 earnings season is cautious,” said Larry Adam, chief investment officer for the private client. group at Raymond James, in a Friday note.

“We have reason to believe that the 3Q22 earnings season will be better than feared and could turn out to be as positive a catalyst for stocks as the 2Q22 results were,” he wrote.

Read: Stocks are trying to bounce back as earnings season kicks off. This is what is needed for the gains to be sustained.

Better-than-feared earnings were credited as helping fuel a stock market rally from late June to early August, with shares recovering sharply from what were then 2020 lows before succumbing to new rounds of selling that , in late September, brought the S&P 500 to its lowest close since November 2020.

While earnings weren’t the only factor in last week’s gains, they probably didn’t hurt.

The number of S&P 500 companies reporting positive earnings surprises and the magnitude of these earnings surprises increased over the past week, John Butters, senior earnings analyst at FactSet, said in a note Friday.

Even with that improvement, however, earnings remain below long-term averages.

As of Friday, 20% of S&P 500 companies had reported third-quarter results. Of these companies, 72% reported actual earnings per share, or EPS, above estimates, which is below the 5-year average of 77% and below the 10-year average of 73%, Butters said. Collectively, the companies report earnings that beat estimates by 2.3%, below the 5-year average of 8.7% and below the 10-year average of 6.5%.

Meanwhile, the combined earnings growth rate, which combines the actual results of companies that have reported with the estimated results of companies that have not yet done so, rose to 1.5% from 1.3%. at the end of last week, but it was still below the estimated earnings growth rate at the end of the quarter at 2.8%, it said. And both the number and magnitude of positive earnings surprises are below their 5- and 10-year averages. Year-over-year, the S&P 500 is reporting its lowest earnings growth since the third quarter of 2020, according to Butters.

The combined revenue growth rate for the third quarter was 8.5%, compared to a revenue growth rate of 8.4% last week and a revenue growth rate of 8.7% at the end of the third trimester.

Next week’s lineup represents more than 30% of the S&P 500 market capitalization, Adam said. And since the tech sector accounts for about 20% of the index’s gains, Visa Inc. V reports,
+1.68%,
Parent Google Alphabet Inc. GOOG,
+0.94%

GOOGLE,
+1.16%,
Microsoft Corp. MSFT,
+2.53%,
amazon.com Inc. amzn,
+3.53%
and Apple Inc. AAPL,
+2.71%
will be closely watched.

Away from hindsight, guidance from executives on the way forward will be crucial amid recession fears, Adam wrote, noting that guidance has remained resilient so far, with the net percentage of companies rising by Instead of narrowing your perspective. positive.

“For example, ‘Summer of Revenge Travel’ was known to benefit airlines, but a comment from United UAL,
+3.56%,
American ALA,
+1.86%
and Delta Airlines DAL,
+1.34%
suggests that demand will remain strong for the coming months and into 2023. Ultimately, the broader and better the forward guidance, the greater the confidence in our $215 S&P 500 earnings target for 2023,” Adam said. .

The rise of the US dollar DXY,
-0.89%,
which remains not far from a two-decade high set late last month, also remains a concern.

Watch: How the strong dollar can affect your financial health

“While the degree of the impact depends on the combination of costs versus foreign sales and currency hedging, a stronger dollar generally hurts earnings,” Adam wrote.