Analyst Cuts S&P 500 Earnings Estimate, Says Recession Risk Rising

The SPDR S&P 500 ETF Trust (NYSE:SPY) is off to a shaky start to 2022, and Bank of America analyst Ohsung Kwon cut his 2022 S&P 500 EPS forecast on Monday heading into first-quarter earnings season.

The Numbers: Kwon is now projecting 6% S&P 500 EPS growth this year, down from his previous estimate of 6.5% growth. Looking ahead to 2023, Kwon is calling for just 4% growth.

Related Link: Why The US Economy And The Stock Market May Be Better Off Than They Seem

In addition to the earnings cuts, Bank of America also cut its 2022 global GDP growth forecast from 4.3% to 3.6%. Kwon said every 1% drop in U.S. GDP has historically translated to about a 3% or 4% hit for S&P 500 earnings.

Kwon said inflation, supply chain disruptions and geopolitical uncertainty have created a scary backdrop for investors in 2022, but Bank of America's latest analyst survey suggests there are still plenty of positive catalysts for stocks, including booming consumer demand, strong balance sheets and healthy capex levels.

Recession Risk: Kwon said U.S. recession risks are "low but rising," and recessions have historically resulted in a 15% to 20% drawdown from peak to trough S&P 500 EPS levels.

"While an economic recession is not our base case, the concern has been growing among market participants as the Fed tries to slow the economy to curb inflation." Kwon said.

For the upcoming first-quarter earnings season, Bank of America is calling for 9% S&P 500 EPS growth, well above consensus analyst estimates of just 5% growth.

Benzinga's Take: Bank of America's full-year 2022 S&P 500 EPS growth estimate of 6% is well below consensus estimates of 9% growth. BofA is calling for earnings growth to decelerate from first-quarter levels throughout the remainder of the year, while consensus estimates are calling for earnings growth to accelerate.