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U.S. companies will post results in the coming weeks on the final quarter of 2021 as investors worry about inflation’s impact on earnings and pressure on the Federal Reserve to speed up the timeline for kicking off interest rate hikes.

The concerns, along with caution tied to the fast-spreading COVID-19 Omicron variant, have driven a recent market sell-off, led by Nasdaq and shares of technology and other big growth companies that have benefited from low interest rates.

Year-over-year profit growth for S&P 500 companies is expected to be lower in the fourth quarter than it was in first three quarters of 2021 but still strong at 22.4 per cent, according to IBES data from Refinitiv.

Huge profit gains earlier in 2021 were fuelled by a rebound from the economic downturn in the early stages of the pandemic.

It’s “nearing the end of the very easy comparisons that we had relative to 2020,” said Bill Northey, senior investment director at U.S. Bank Wealth Management. “Those easy comparisons will begin to wane as we move into 2022.”

Last year’s strong market performance – with the S&P 500 gaining 26.9 per cent for the year – was on the back of massive profit growth, so corporate outlooks for 2022 will be key this earnings period, Mr. Northey said.

Earnings growth for all of 2021 is estimated at about 50 per cent compared with 8.6 per cent for 2022, while the forward price-to-earnings ratio for the S&P 500 was last at 21.7, compared with its long-term average of 15.5, according to Refinitiv DataStream.

JPMorgan Chase is due to report Friday and will kick off the reporting period along with Citigroup and Wells Fargo.

Heading into earnings season, bank shares have rallied with U.S. Treasury yields as focus has turned to rate hike expectations.

Analysts expect big U.S. banks to show an increase in fourth-quarter core revenues, thanks to new lending and rising Treasury yields.

Both the S&P 500 bank index and financial index hit record highs last week. Minutes released last week from the Fed’s December meeting showed some policy makers want to tighten policy even faster. With inflation among their top worries, investors will also watch for signs supply chain bottlenecks may be easing. U.S. economic reports have offered some hope on that front.

Last week’s report on U.S. services industry activity included tentative signs the supply logjam in that sector is starting to break up.

Transportation snags at ports and other areas have led to bigger expenses for companies and higher costs for consumers.

Bottlenecks have hit retailers especially hard, and investors will watch for how they affected holiday sales.

S&P 500 companies have been maintaining record profit margins, with many able to pass on higher expenses to customers, but that may not continue.

“We expect margins not to be a record this quarter” but still high, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices in New York.

The stock market has seen investors rotating out of technology-heavy growth shares and into more value-oriented stocks that tend to do better in a higher interest-rate environment. Still, some investors say technology company results could be much better than Wall Street expects.

Results from big tech and other megacap companies start next week, with Netflix due to report on Jan 20.

Recent results from some chip companies including Micron Technology were upbeat, said Daniel Morgan, portfolio manager at Synovus Trust in Atlanta, Georgia.

“That gives me confidence we should get good reports out of the chips sector,” he said. “I’m optimistic.”

Energy, materials and industrials sectors are expected to post the biggest year-over-year earnings gains in the fourth quarter, according to Refinitiv data.

Energy has been by far the strongest S&P 500 sector performer in early 2022, with the S&P 500 energy index up about 14 per cent since Dec. 31, supported by tight supply, following a whopping 48-per-cent gain in 2021.

Results from oil majors ExxonMobil and Chevron are due in a couple of weeks.

But all 11 of the S&P 500 sectors are slated to show profit growth for the fourth quarter of 2021, while revenue growth for the period is seen at 12.1 per cent. That growth level would also be lower than in recent quarters, based on Refinitiv data.

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