WSH in the News Q4 Earnings Preview: S&P 500 Growth Starts To Normalize, But Remains High

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Rising Rates, Stronger Dollar Will Be In Focus 

While much of the last year focused on issues like supply-chain disruptions, inflation and labor costs, companies will shift to some new(ish) themes when they address Q4 results. Topics such as the stronger dollar and rising rates, both which were emerging in Q3 commentary, will take center stage over the next several weeks.

Many analysts are now anticipating an aggressive tightening of U.S. monetary policy in 2022. Last week the Fed issued minutes from its latest meeting, indicating that the “very tight” U.S. labor market might require the central bank to raise rates sooner, taper asset purchases and also reduce its overall balance sheet to quell high inflation. As such, many banks have now moved up their timeline for rate hikes to begin in March, and happen quarterly. Expect to hear more about this from the big banks on Friday, as they look forward to recovering net interest income. Other sectors, such as technology, are more likely to have negative commentary around rising rates.

While higher interest rates would be a boon for many sectors, the strengthening dollar is likely to be a concern for many multinationals. S&P 500 companies get close to 50% of their revenues from outside of the U.S., when the dollar strengthens, any income earned from foreign sales will decrease in value. Oftentimes, however, the stronger dollar is seen as a scapegoat for missed expectations, in the same vein as the “bad weather” excuse that many companies use every winter.