By Caroline Valetkevitch

NEW YORK (Reuters). Investors expect a fall in U.S. earnings after oil and commodity prices skyrocket, and major U.S. businesses like McDonald’s stop selling Russian products following Russia’s invasion.

The estimates of earnings growth have not changed much since two weeks ago when the invasion started. However, strategists believe that this will change as more companies provide guidance for earnings in the coming year.

The surge in commodity prices remains the biggest risk to profit growth, they said, since overall S&P 500 companies’ revenue exposure to Russia is relatively small.

According to Peter Tuz of Chase Investment Counsel, Charlottesville, Virginia, prices “jumped on Russia-Ukraine instability, but they had been rising pretty quickly anyway,” he said.

Forecasts for all other sectors, except energy, are expected to fall. He also stated that he was seeing many companies move away from Russia.

PepsiCo (NASDAQ) Inc and Coca-Cola are among the companies that make up McDonald’s Corp (NYSE) Starbucks Corp (NASDAQ) – Tuesday’s sales stoppage of the most popular products from Russia by McDonald’s. McDonald’s said Wednesday that temporary closures of their 847 Russia stores would cost them approximately $50 million per month. Here is a list of Russian companies who have reduced Russia trade and operations:

One-time costs related to the closures “could be significant on cash flow” for some companies, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices in New York.

PRICING IN PROFIT CONCERNS

According to analysts, investors have already begun pricing in an expected earnings impact due to the sharp decline in stock prices. The S&P 500 is down about 12% from its Jan. 3 record closing high and the Index earlier this week finished down more than 20% from its November record closing high, confirming it is in a bear market.

The forward price-to-earnings ratio on the S&P 500 is now at about 19, down from more than 22 at the start of the year.

This week, oil prices reached a new high of over $139 per barrel. The United States and other nations imposed a series of sanctions to stop Russia’s energy exports.

Although higher oil prices can be a benefit to energy companies, it is a problem for consumers as well as businesses.

The S&P 500 energy sector is up 38% so far in 2022, but it accounts for only about 4% of the S&P 500. At 27%, technology is the largest sector.

Some analysts have concluded that higher oil prices are a benefit to companies in the energy sector, while airlines and other businesses could be hurt by them. However, rising gasoline prices and other commodities are proving costly for consumers.

The Labor Department reported a broad increase in consumer prices on Thursday, which was the highest annual inflation rate in over 40 years. This is likely to continue in the coming months as Russia wage war against Ukraine.

Russia calls its actions in Ukraine a “special operation.”

Investors believe that the U.S. Federal Reserve will raise interest rates in the coming month to fight inflation. This would make the outlook for economic growth and profits more uncertain.

Russia-Ukraine is also coming at the same time that many people and businesses are returning to normal after living with the coronavirus epidemic for 2 years. However, the U.S. profit growth in 2022 was already much lower than 2021 after companies saw a huge rebound from the lows of the pandemic.

U.S. companies are scheduled to report their results for the first quarter next month. Analysts expect first-quarter S&P 500 earnings to increase 6.2% from a year ago, while they expect second-quarter earnings to grow 5.7%, according to IBES data from Refinitiv. S&P 500 profit growth for all of 2022 is estimated at just 8% compared with 52% growth in 2021.

Nick Raich CEO, independent research company the Earnings Scout, stated that the quarter will see “really close to zero growth”. The Earnings Scout CEO Nick Raich stated that third and fourth quarter numbers will have to drop, as well.