Earnings reporting season has taught investors a valuable lesson halfway through.

Fourth-quarter earnings season is halfway through on Thursday. While corporate America has plenty of cash, 2022 estimates are not as strong as 2021.

The highlights so far:

Corporate America is experiencing unprecedented financial success, with record-breaking revenues and dividend payouts.

Companies are falling short of estimates by a larger margin than in the previous five quarters.

The earnings estimates for the first quarter have been declining, but they have risen slightly for the second and third quarter.

Although profit margins have decreased slightly, they remain strong. In the second quarter of 2021, the S&P 500 recorded a record operating profit margin of 13.5%, thanks to higher revenues and lower costs from labor, real estate, and technology. However, this has changed somewhat, with corporations reporting higher labor and commodity costs, resulting in a lower operating profit margin of 12.7%. Despite this, profit margins remain healthy.

What’s it all mean?

Wall Street pays more heed to guidance on future earnings and dividends than to reported earnings.

Earnings are predicted to reach a new record in 2022, but the growth rate is expected to be lower than the previous year's 47% increase, with only an 8% rise anticipated.

Why are stock prices not rising as much in 2022 despite the increase in earnings estimates?

Nick Raich, an expert in tracking corporate earnings at Earnings Scout, predicts that the Fed's rate hike campaign and the ongoing inflation story will determine the range of earnings outcomes this year.

The uncertainty reflected in the up-and-down earnings estimates for 2022 is due to the unclear outlook.

He said that the declining first quarter estimates reflect the reality of supply chain and inflationary problems, while the rising numbers in the second and third quarters are merely wishful thinking.

Savita Subramanian at Bank of America Securities concurs: "Analysts predict a brief increase in 1Q due to Omicron," she stated in a recent client note.

Inflation is expected to persist longer than anticipated, according to corporate America. As 3M stated, "Inflation has moved downstream, and it's being felt in more places than ever before."

Advertiser budgets are being affected by macroeconomic challenges such as cost inflation and supply chain disruptions, as reported by Meta (Facebook) in their earnings report after the close last night.

Despite a step-up increase in wages, analysts expect profit margins to improve to new highs by 2Q.

The Fed's rate-hike calendar is a second wildcard that Raich believes has not been fully priced into the market.

The bond market is anticipating four or five rate increases, but the stock market has not fully reflected this expectation," he said. "It appears that many analysts believe the Fed is taking a tough stance but may not actually deliver on four or five hikes.

Stocks are getting pricey again

The S&P is currently trading at 20.4 times 2022 earnings, which is above the historic range of 15-17 times forward earnings estimates, due to the recent rally and lack of aggressive earnings raises for 2022.

According to Peter Tchir at Academy Securities, a warning sign is that.

According to Tchir, when high valuation companies like Paypal or Meta miss their targets, they are heavily penalized, indicating that a significant portion of the market is still overvalued.

To increase earnings estimates, it will require a bottom in China and a decrease in omicron cases, which will alleviate supply chain and inflation pressures. This will result in more jobs being filled, which will support strong spending.

The Fed is creating headwinds for asset prices, and there is no way to overcome this obstacle in the near future.