earnings season kicked off last week with 9 sp 500 companies reporting and banks and financial companies dominating the total the sp 500 soared by almost 27 for the week consumer inflation cpi provided a spark and bank earnings were generally better than expected bank shares rose 22 and regional banks were over 15 higher last week the pace and the breadth of the fourthquarter earnings season accelerate this week with 26 sp 500 companies scheduled to report at this early juncture blended earnings which combine actual with estimates of companies yet to report are lower than forecasts at the end of the quarter but improved last week the high earnings growth rate for the industrials remains misleading since the airlines reported a loss in the fourth quarter of 2021 and should post a profit this quarter only two sectors real estate and health care are expected to post higher earnings than expected on december 30th the energy sector has the highest expected growth rate driven by increased energy prices with expected earnings slated to increase by 61 yearoveryear on a related note berkshire hathaway continued to buy shares of occidental petroleum oxy in 2022 and now owns over 20 of the company a previous piece discussed why warren buffett’s berkshire hathaway could be adding to its holdings in occidental petroleum the blended revenues paint a similar picture with only three sectors real estate consumer staples and health care having better estimates than at the end of the quarter sales in the energy sector illustrate the robust increase in energy commodity prices so far the blended earnings performance has underperformed expectations at the end of the quarter combining actual results with consensus estimates for companies yet to report the blended earnings growth rate for the quarter improved to 39 yearoveryear below the expectation of 32 at the end of the quarter despite the rise in fourthquarter blended earnings expected earnings growth for the calendar year 2023 declined this week bank and financial earnings dominated the first week of the earnings season headline earnings from the banks were almost uniformly better than expected blackrock blk bank of new york mellon bk bank of america bac jpmorgan jpm wells fargo wfc and first republic frc beat earnings estimates while only citigroup c missed expectations core earnings remained solid boosted by lending benefitting from rising interest rates net interest margin nim the spread a bank earns in interest on loans compared to the amount it pays in interest on deposits was solid across the banks while the banks are preparing for future possible loan losses by increasing reserves actual delinquencies and credit trends have remained benign so far the 2022 bear market in stocks negatively impacted investment banking and wealth managementrelated earnings but the core lending business of the banks remained healthy the banks guided for at least a more challenging economic environment in 2023 for example jpmorgan is planning for a mild recession in late 2023 more banks and financials report this week including goldman sachs gs morgan stanley ms schwab schw pnc financial pnc discover financial services dfs and several regional banks outside of the earnings season stocks were boosted by moderating december consumer inflation data the headline cpi reading declined to 65 yearoveryear rate from 71 in november and well below the high of 91 in june the better headline inflation reading had less attractive underlying details with the sticky inflation components continuing to climb despite the troubling details marketbased measures of expected inflation are now pricing in that inflation is on a path toward a bit over 2 this improvement in expectations has boosted stocks but also presents a risk to the rally if inflation proves to be more stubborn than market expectations markets expect only two more shortterm interest rates from the federal reserve fed in its battle against inflation the market has currently priced in an upcoming hike of 25 basis points 015 at the meeting on february 1st and another 25 basis points on march 22nd despite the high probability of a recession in 2023 continued improvement in inflation and an end to fed rate hikes open the window slightly to dodging the economic downturn it is still very early but headline earnings improved last week but remained below estimates at the end of the quarter as discussed last week margin pressures inflation and the strong dollar remain headwinds for the fourth quarter earnings season still actual results can outpace the dour estimates at the beginning of the earnings season this week a more diverse group of companies beyond the banks reports earnings so it will be instructive to see if the earnings performance continues its relative improvement markets are likely to be particularly sensitive to forward guidance from companies while the probability of recession in 2023 remains high