By Caroline Valetkevitch

NEW YORK, (Reuters) – As oil prices rise and interest rates rise, expectations of corporate growth for this quarter and the next are decreasing.

The sky-high price of oil has raised earnings forecasts by energy companies, while raising concerns over profit margins in many other sectors.

Recent reports have highlighted disappointing outlooks for Amazon.com (NASDAQ) and Netflix (NASDAQ), even though the year-over-year profit growth estimate has increased to 10.4%, compared to 6.4% at April’s start, according to IBES data by Refinitiv.

Amazon.com’s quarter ended with a dismal outlook. The company said it was affected by the higher cost of running its warehouses and delivering packages.

As of Friday, analysts had lowered their overall forecast for S&P 500 second-quarter profit growth to 5.6% from 6.8% at the start of April, while the full-year forecast has held at 8.8%, based on Refinitiv data.

The 2022 growth estimate, however, drops to about 5% without the energy sector’s growth – a sizeable impact for a sector that accounts for just 4% of the S&P 500’s market capitalization.

Ohsung Kwon (U.S. equity strategist, BofA Securities in New York) stated that there will be “more downside” due to the oil shock.

“It’s going take some time to this to work out,” he stated. “It is not only from energy, but also overall inflation plus the higher-rate environment.”

Positive corporate outlooks are more common than positive in quarters because companies have a tendency to give cautious guidance.

BofA data shows that the ratio of above and below-consensus company guidance to guidance in three months fell to their lowest point since June 2020.

Investors are worried that the Federal Reserve will raise interest rates aggressively in order to control inflation, which has led to stocks falling. The S&P 500 is down about 13% for the year so far.

The U.S. central banking raised interest rates by half an percent on Wednesday as per expectations. According to recent data, March saw the largest increase in U.S. consumer prices for 16-1/2 year. This was due to the fact that gasoline costs rose record highs in the wake of Russia’s invasion of Ukraine.

Investor fears have not been alleviated by forward-looking statements from companies.

Shannon Saccocia (chief investment officer, SVB Private Bank) stated that “if anything, CEOs’ comments reflect the same macroeconomic concerns.” They have not been transparent enough about how engineered an economic slowdown they will cause.

Since the start of April, estimated 2022 S&P 500 energy sector earnings growth has gone up to about 93% from about 65%, per Refinitiv data. Over that same period, the 2022 S&P 500 consumer discretionary earnings growth forecast has gone down to about 7% from 17%.

Peter Cardillo (chief market economist, Spartan Capital Securities, New York) stated that if inflation rises, then we will be fine and continue to experience growth. If it does not then that’s going be a problem. Even though earnings may appear good, companies will have to cut costs.