Quarterly earnings releases will begin taking center stage this week, helping dilute the market’s rapt attention on rising treasury bond yields. The push higher in yields has been reflective of the higher-for-longer Fed view, which in turn has been driven by the U.S. economy’s extraordinary resilience.
The economy’s resilience has been showing up in the positive turn in the earnings outlook that we have been flagging in this space in recent months. Specifically, the earnings estimates revisions trend notably stabilized in early April this year after steadily coming down for nearly a year.
Had it not been for the Energy sector weakness, whose estimates had been steadily coming down this year before reversing course in recent days and going back up, aggregate earnings estimates would be modestly up since early April 2023.
Sectors enjoying positive estimate revisions in this time period include Tech, Construction, Autos, Consumer Discretionary, Industrial Products, and Retail.
We are seeing a similar revisions trend at play concerning estimates for 2023 Q3, whose advanced results have started coming out already.
The expectation currently is of S&P 500 earnings declining by -2.1% in Q3 from the same period last year on +0.6% higher revenues. This would follow the -7.1% decline on +1.1% higher revenues in 2023 Q2.
The chart below highlights the year-over-year Q3 earnings and revenue growth in the context of where growth has been in recent quarters and what is expected in the next few periods.
Image Source: Zacks Investment Research
As you can see here, 2023 Q3 is expected to be the last period of declining earnings for the index, with positive growth resuming from 2023 Q4 onwards. In fact, had it not been for the Energy sector drag, earnings growth in 2023 Q3 would already be positive.
You can see this in the chart below which shows the index’s year-over-year earnings growth on an ex-Energy basis.
Image Source: Zacks Investment Research
The chart below shows the year-over-year change in net margins, with Q3 currently expected to be the 7th consecutive quarter of declining margins.
Image Source: Zacks Investment Research
Excluding the Energy sector, however, net margins would be modestly up from the year-earlier period.
One sector that has made significant progress on the margins front is the Tech sector, whose year-over-year comparison turned positive in the preceding period and is expected to expand further this quarter, as the chart below shows.
Image Source: Zacks Investment Research
The chart below shows the earnings and revenue growth picture on an annual basis.
Image Source: Zacks Investment Research
Look at current expectations for next year and the year after to understand the disconnect between the reality of current bottom-up aggregate earnings estimates and the seemingly never-ending worries about an impending economic downturn. That said, most economic analysts have been steadily lowering their recessionary odds in recent months.
This Week’s Notable Earnings Releases
The Q3 earnings season will really get going when the big banks start coming out with their quarterly numbers a week from today. We have 12 S&P 500 members on deck to report results this week, including JPMorgan JPM and other bank results, on Friday, October 13th. Other notable companies reporting this week include Pepsi PEP on Tuesday, October 10th, and the October 12th release from Delta Air DAL.
Remember that this week’s results from JPMorgan, Pepsi, and Delta wouldn’t be the first earnings reports that will be counted as part of the 2023 Q3 tally. That distinction goes to Oracle and 19 other S&P 500 members that have already reported results in recent days for their fiscal periods ending in August.
All of these early results from the 20 index members are from companies with fiscal quarters ending in August, which we count as part of our September-quarter tally.
For the 20 S&P 500 members that have reported already, total earnings and revenues are up +2.3% and +4.3% from the same period last year, with 85% beating EPS estimates and 65% beating revenue estimates.
The comparison charts below put the Q3 earnings and revenue growth rates at this very early stage in a historical context.
Image Source: Zacks Investment Research
The comparison charts below put the Q3 EPS and revenue beats percentages in a historical context.
Image Source: Zacks Investment Research
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>The Q3 Earnings Season Kicks Off?
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