As third-quarter earnings season gets underway, investors will be missing a good chunk of the action if they ignore guidance for the fourth quarter. By the day, it’s getting more and more clear that expectations for the final quarter of the year are too high. Companies from a variety of industries, in recent weeks, have called out a slowdown in demand. Some have issued impromptu profit warnings ( FedEx , AMD , VF Corp ., McCormick and Rent-A-Center ), while others have given weak guidance within earnings reports ( Micron , Lennar , Stitch Fix , Levi Strauss , Accenture and RH ). The result has been downside momentum heading into the earnings reports ahead. While analysts covering individual companies have been waiting to get more clarity from those names before taking down estimates, Wall Street strategists are already sounding the alarm bells that next quarter’s estimates remain too lofty and will come down in the coming weeks. “The risk isn’t 3Q. It’s guidance,” cautions Savita Subramanian, Bank of America’s head of U.S. equity and quantitative strategy. “Guidance is likely to matter most, and we see substantial downside risk to 4Q and 2023.” “We expect guidance to weaken even further going forward and more downward revisions across the board,” she added. Other strategists have been taking down forecasts for next year as well, citing expectations for a possible recession. What we know so far A number of companies have already expressed that the environment looks murky for the rest of the year. Among them, FedEx withdrew its full-year forecast a few weeks ago. And Monday, two companies unexpectedly warned that performance will disappoint not only for the current quarter but also in the next quarter, too. Paint and coatings producer PPG Industries said ” sales volume declines were most pronounced in September” and it expects difficult conditions to continue into the fourth quarter. Mitch Dolloff, CEO of diversified manufacturer Leggett & Platt cautioned, “The increasingly challenged global economic environment and consumer backdrop is expected to result in lower than previously anticipated sales and earnings in the third and fourth quarters of 2022. ” On Tuesday, Leggett & Platt shares were down nearly 7% in trading. The stock, which has fallen 21% year to date, hit a 52-week low of $30.28 intraday. PPG shares fell sharply on Monday after its report, but the stock was trading up just under 1% on Tuesday. Shares are down nearly 35% since the year began. The estimate adjustments are ongoing. Bellwether companies FedEx and Nike have seen their estimates cut significantly since posting results last month . Analysts also slashed estimates for both the third and fourth quarter after AMD’s profit warning last week. There are plenty of other examples. Fourth-quarter earnings estimates for the S & P 500 have already been reduced in half since July 1 – which was just before the start of the second-quarter earnings season. Wall Street expects Q4 earnings for S & P 500 companies to rise 5.2%, down from the projected 10.6% growth three months ago, according to Refinitiv. Where the risk is Within that, four S & P 500 sectors — communication services, financials, consumer discretionary and materials — are already projected to show earnings contraction in the fourth quarter. Another three — consumer staples, tech and health care — are on the brink of joining them. Here’s a compelling reason for not ignoring fourth-quarter estimates over the next few weeks. Take a look at what happened during the just-completed Q2 earnings season. Second-quarter earnings ended up rising 8.4% year-over-year. That was higher than the 5.6% growth projected at the start of the season. But the second quarter wasn’t where the big or important move was. That came from the forward-looking Q3 estimates, which tumbled during Q2 earnings season as more companies signaled macro troubles would be in store during the back half of the year. In that same three-month period — during which second-quarter earnings growth improved — projected Q3 EPS growth expectations fell to a mere 4.5% gain, down from an earlier expectation of an 11.1% rise. That’s why it’s important to watch what happens with the forward-looking fourth-quarter estimates this earnings season. Another substantial decline in those figures will happen with more weak forecasts from a broad spectrum of companies. That could happen even if third-quarter earnings wind up topping current growth forecasts ever so slightly. Remember, third-quarter estimates have already come down significantly, and there’s a good chance many companies could wind up beating lowered expectations this season. But that doesn’t mean everything is rosy if fourth-quarter estimates are being drastically reduced at the same time. Ultimately, that could put more pressure on stocks in the weeks ahead.