Stock-market investors brace for busiest week of earnings season. Here’s how it stacks up so far.

So far, so good?

Stocks closed the first full week of the earnings season strong Friday, pushing the Dow Jones Industrial Average DJIA,
+2.47%,
S&P 500 SPX,
+2.37%
and Nasdaq Composite COMP,
-0.81%
to their strongest weekly gains since June. The coming week will be more hectic, with 165 S&P 500 companies, including 12 Dow components, following the report results, according to FactSet, making it the busiest week of the season.

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

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

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Read: Stocks are trying to recover as the earnings season begins. This is what it takes to hold the profit.

Better-than-feared gains were credited for fueling a stock market rally from late June to early August, with stocks rebounding strongly from what were then 2020 lows before succumbing to fresh sell-offs that in late September brought the S&P 500 to its lowest close since November 2020 .

While gains 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 those earnings surprises increased over the past week, John Butters, senior earnings analyst at FactSet, noted in a note Friday.

However, even with that improvement, profits still remain below the long-term average.

Through Friday, 20% of companies in the S&P 500 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. Overall, companies report profits that are 2.3% above estimates, which is below the 5-year average of 8.7% and below the 10-year average of 6.5%.

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Meanwhile, the mixed earnings growth rate, which combines actual results for companies that have reported with estimated results for companies that have yet to report, rose to 1.5% from 1.3% at the end of last week, but was still below estimated earnings growth at the end of the quarter at 2.8%, he said. And both the number and magnitude of positive earnings surprises are below their 5-year and 10-year averages. On an annual basis, the S&P 500 reports the lowest earnings growth since the third quarter of 2020, according to Butters.

Mixed sales growth for the third quarter was 8.5%, compared to sales growth of 8.4% last week and sales growth of 8.7% at the end of the third quarter.

Next week’s lineup will account for more than 30% of the S&P 500’s market cap, Adam said. And with the technology sector accounting for about 20% of the index’s revenues, Visa Inc. v,
+1.68%,
Google parent Alphabet Inc. GOOG,
+0.94%

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GOOGL,
+1.16%,
Microsoft Corp. MSFT,
+2.53%,
Amazon.com Inc. AMZN,
+3.53%
and Apple Inc. AAPL,
+2.71%
will be closely monitored.

Looking back at numbers, guidance from executives on the path ahead will be crucial against a backdrop of recession fears, Adam wrote. positive.

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

The rising US dollar DXY,
-0.89%,
which is not far from its highest point in two decades late last month also remains a concern.

To see: How the Strong Dollar Could Affect Your Financial Health

“While the degree of impact depends on the combination of costs and sales abroad and how much of the currency risk is hedged, a stronger dollar typically hurts profits,” Adam wrote.

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