I grew up in northern Massachusetts, so it stands to reason that I played on the high school ice hockey team. I was a mediocre player, accustomed to “riding the pine.” But I loved the game.

I’ve always remembered this advice from my hockey coach: “Don’t skate to where the puck is, skate to where you think it will be.” His adage serves as a metaphor for many aspects of life. Which brings me to corporate earnings season. As in hockey, the key with earnings is to stay forward looking.

The earnings outlook for the fourth quarter of 2022 is diminishing as the economy slows, which is resulting in cuts to earnings forecasts and continued downside for stocks. Let’s see where the puck may be heading.

For Q4 2022, the estimated earnings decline for the S&P 500 is -2.8%, according to the latest data (as of December 15) from research firm FactSet.

If -2.8% is the actual decline for the quarter, it will mark the first time the index has reported a year-over-year earnings decline since Q3 2020, at -5.7%.

Quarterly outlooks have turned pessimistic. For Q4, 63 S&P 500 companies have issued negative earnings guidance and 34 companies have issued positive earnings guidance.

That said, the consensus of analysts still calls for the S&P 500 to report earnings growth of 5.1% in calendar year (CY) 2022 (see chart).

The majority of the year-over-year earnings growth for CY 2022 happened in the first half of the year.

Eight of the 11 S&P 500 sectors are projected to report year-over-year growth in earnings in CY 2022, led by the energy, industrials, and real estate sectors. Three sectors are projected to report a year-over-year decline in earnings: financials, communication services, and consumer discretionary.

WATCH THIS VIDEO: Economic Crosscurrents, Explained

The energy sector is projected to post the highest year-over-year earnings growth of all 11 sectors, at a whopping 151.7%. Indeed, the energy sector is the largest contributor to earnings growth for the S&P 500. If energy were excluded, the index would be expected to report a decline in earnings of -1.8% rather than growth in earnings of 5.1% for CY 2022.

Inflation has shown signs of peaking, with encouraging prints for November’s consumer and producer price indices. Nonetheless, rising input costs are undermining the corporate bottom line.

The estimated net profit margin (based on aggregate estimates for revenues and earnings) for the S&P 500 for CY 2022 is 12.0%, which is below the net profit margin of 12.6% for CY 2021.

Four sectors are projected to report higher net profit margins in CY 2022 relative to CY 2021, led by energy (13.2% compared to 7.6%).

The combination of recession fears, rising interest rates, and corporate earnings deceleration has been weighing on stocks. The major U.S. equity benchmarks tumbled for the past three days in a row.

After finishing in the red Wednesday and Thursday, the main U.S. stock market indices also closed lower on Friday, as follows:

• DJIA: -0.85%
• S&P 500: -1.11%
• NASDAQ: -0.97%
• Russell 2000: -0.63%

The main indices fell for the second straight week, as recession worries worsen. So much for the hoped-for Santa Claus rally. It seems that this holiday season, we’re getting a lump of coal instead.

Much of the blame can be placed at the doorstep of the Federal Reserve, which has decided that to fight inflation, it’s necessary to clobber the economy. Fed Chair Jerome Powell has relegated investors to the bench.

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