Something strange is going on this earnings season. Companies are reporting strong fourth quarter results, while at the same time issuing very conservative earnings guidance for 2022. What gives? My sense is that given the uncertainties surrounding COVID and the tenuous supply chain, corporate managements have decided to take the stock price hit from the weak earnings guidance early on and thereby allow for positive surprises as the year evolves. In short, their earnings outlook has be de-risked.
Compay managements following this policy include, for example, Abbott Labs, L3Harris and Honeywell this morning. Simply put, barring a real downturn in the economy earning guidance will gradually increase from quarter to quarter. As a result, the de-risking should put a floor underneath the broad trading range for stock prices that I envision for this year.
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