6 Reflections on 2022: The FactSet Year in Review

Amid persistent inflation, continued rate hikes and geopolitical uncertainties, global capital markets have experienced substantial pressure throughout 2022. Six FactSet experts reflect on the year and share insights.

U.S. Earnings: 2022 Growth Rate Below the Trailing 10-Year Average

John Butters, VP, Senior Earnings Analyst

Despite a difficult comparison to an unusually high earnings growth rate in CY 2021, analysts still expect the S&P 500 to report single-digit earnings growth in CY 2022. The estimated year-over-year earnings growth rate for CY 2022 is 5.1%, below the trailing 10-year average annual earnings growth rate of 8.5% (2012 – 2021). It is also below the estimates of 9.1% on June 30 and 6.9% on September 30, as over the past six months analysts have lowered earnings estimates in aggregate for CY 2022.

Most of the year-over-year earnings growth for CY 2022 occurred in the first half.

• For Q1 and Q2, the S&P 500 reported earnings growth of 9.4% and 5.8%, respectively.

• In Q3, the index reported earnings growth of 2.5%.

• An earnings decline of -2.8% is projected for Q4 2022.

Eight of the 11 S&P 500 sectors are predicted to report year-over-year growth in earnings in CY 2022, led by the Energy, Industrials, and Real Estate sectors. On the other hand, three sectors are projected to report a year-over-year decline in earnings: Financials, Communication Services, and Consumer Discretionary.

European Earnings: Strong Top and Bottom-Line Growth in 2022

Sebastian Segerstrom, VP, Research Solutions, Director of EMEA Sales

As we approach the end of 2022, European companies look to report strong sales and EPS growth on aggregate. The STOXX Europe 600 is expected to grow CY22 sales by 17% and EPS by 25%. Expectations have barely shifted since September, with sales remaining flat y/y at 17% while EPS is up slightly from the 24% growth projection three months ago. The driving factor being the Energy sector expecting to report 154% EPS growth y/y, while Real Estate has been hit hard by the increased interest rates as the sector is poised to report a 24% EPS decline y/y. Nine out of the 11 sectors are estimated to report positive earnings growth for the year. We are yet to see earnings deteriorating widely across the sectors in Europe, though there is a looming sense of pressure building.

Fixed Income: An Annus Horribilis Through Rose-Colored Glasses

Pat Reilly, SVP, Senior Director, Americas Analytics

Ah 2022, the year when cash decidedly was not “trash” and where virtually every asset type in the fixed income landscape (barring floaters) was deep in the red. It was almost an academic exercise in relearning the punishing fundamentals of duration. Even short duration struggled to make a go of it.

But all is not lost for the coupon-clipping crowd. Domestically, a steeply inverted curve presents attractive barbell and ladder opportunities, while globally, negative rates are finally in the rearview mirror. All it took was unprecedented government support followed by generational inflation to make fixed income interesting again. On to 2023!

A Mixed Bag for Digital Assets

Sean Ryan, VP, Principal Content Manager

Digital assets endured a disastrous 2022, yet the institutionalization of the market continued to progress and tokenization of real-world assets gathered steam. Cryptocurrency prices declined sharply, owing to both macro factors such as rising interest rates and crypto-specific factors such as the collapse of Terra/Luna in the spring and FTX in the fall. Venture capital deployments in the blockchain ecosystem also dropped off, roughly in line with broader VC trends.

Market participants waited in vain for legislation to properly regulate the market. Yet despite all this, the foundations of a healthy market continued to fall into place. Trusted, regulated firms entered the market, including Bank of New York Mellon and State Street offering custody, and Fidelity offering cryptocurrency brokerage.

Established asset managers such as KKR, Apollo, and Hamilton Lane began tokenizing their funds, promising democratized access to alternative investments, with greater secondary market liquidity. Development on the Ethereum platform continued to accelerate, with weekly SDK downloads tripling and smart contract deployments up 50% versus 2021 levels.

Large consumer-facing companies such as Disney and Starbucks began developing projects on the Polygon blockchain. The end of ZIRP, the purging of bad actors, and forced deleveraging all continue to take a toll on the cryptocurrency market, but through it all, the elements of a useful and sustainably profitable sector continue to grow.

Global Focus on Greenwashing

Mackenzie Hargrave, Senior Principal Product Manager, ESG Solutions

There is no shortage of topics to reflect on with regards to ESG, and one such topic is the increased attention given to greenwashing globally.

Investors, regulators, and consumers alike wrestle with how to measure, expose, and safeguard against corporates or investment products overstating their environmental or social benefits.

Source: FactSet

Fears that greenwashing undermines achievement of sustainability goals and poses risks to investors have spurred regulatory action globally. For example:

• The EU’s Sustainable Finance Disclosure regulation introduced wide reaching sustainability disclosures for financial market participants. In November, the European Securities and Markets Authorities (ESMA) proposed these requirements be taken a step further to impose quantitative thresholds for funds labeled as “ESG” or “sustainable” to protect against exaggerated

• UK Financial Conduct Authority (FCA) proposed a fund labelling framework that also imposes performance thresholds.

• U.S. Securities and Exchange Commission (SEC) proposed new disclosure requirements to classify and describe the ESG fund strategies.

• Australian Securities and Investment Commission (Asic) issued its first fine for greenwashing against Tlou Energy, following shortly after it announced it was investigating superfunds for misleading claims. 

• Japan’s Financial Services Agency signaled ESG fund disclosure requirements are coming, leading to asset managers avoiding using “ESG” in newly launched fund names.

The influx of regulation comes with its own set of challenges. Fund managers, especially those selling into the EU, are focused on data sourcing and standing up processes to support SFDR reporting.

We’ve also seen an increased interest from buy-side firms in proactively measuring and detecting greenwashing at the corporate and fund level. However, comparing disclosures with real-world outcomes is easier said than done—especially at scale. We recently explored how FactSet’s Truvalue data can help, starting with the topic of social washing.

“Zeitenwende” Prompts Swift Pivot to Energy Resiliency

Philipp Zerhusen, VP, Director, Digital Wealth Solutions

Given I am based in Europe (Germany) and thus directly exposed to the “Zeitenwende” (change of history) due to the Ukraine war, it was interesting to see how profoundly all beliefs and convictions were called into question. Not only in private life and the economy, but also directly in financial investments:

• The strong focus on ESG—in particular an all-present climate focus—suddenly took a back seat to the EU’s energy resiliency, which was never doubted before.

• With a war on our doorstep, individual and public opinion changed suddenly and dramatically. For example, defensive weapons quickly became an ethical investment—ignoring the debate on how to differentiate between defensive and offensive ones.

• Impact investing, once a big focus and mega-trend towards a better and cleaner world, became a luxury. Combined with the steep downturn in financial markets, it was interesting to see—and the final verdict is still out—how fast all ESG and thematic investment purposes have taken secondary importance over asset protection and generating returns, no matter what.

• We also saw notable improvements in AI technology turning qualitative data into quantitative metrics. One example is our own product launch.

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