Stocks rose last week (S&P 500 +4.7%) after falling to a 2.5 year low the week before. The increase was attributable to technical and sentiment reasons, but also Q3 earnings reports coming in less bad than feared. Best sectors were energy (+8.1%), technology (+6.5%), and materials (+6.2%); worst sectors were utilities (+2.0%), consumer staples (+2.2%), and healthcare (+2.3%).
3Q’22 Earnings Season Mixed So Far
With just 20% of companies reporting thus far this earnings season, results have been mixed. Earnings growth is expected to slow to 3.1% from the 4.5% expected at the beginning of the month, and excluding the energy sector earnings growth is expected to be negative -3.5%. This week will be pivotal as several of the largest earnings contributors report. Expected sales growth has remained steady just under 10%.
2023 EPS Growth Moving Lower, Still Elevated If We See A Recession Next Year
Earnings growth for next year has moved lower over the last week to 7.2% but remains above the long-term CAGR for the overall index. We continue to believe that EPS estimates for 2023 need to come down further especially if the economy faces a recession. With the current estimate at $238, the consensus estimate is roughly 15% higher than our 2023 forecast of $200.
Massive Wave Of Lower Analyst Price Targets As Earnings Season Begins
If the initial wave of lower analyst price targets is an indication of how the remainder of the earnings season will turn out, we could be on pace to surpass the 2020 spike. Given the widespread belief that 2023 will see a recession, companies are softening their guidance which is giving analysts the cover they have been looking for to lower estimates. Should a recession not materialize, the bar for beating EPS estimates will likely be lower. This certainly is not our base case.
Cost Growth Lowest Since The End Of 2021
One positive item that we have noticed of late is the continuation of a slower growth trajectory for costs. At 13% year over year, costs are still growing quite fast but this is now the slowest growth rate since the end of 2021. With supply chains clearing and inflation turning lower as well, this makes sense. It would support elevated margins.
3Q earnings reports, GDP, bonds progress and more: Monday...
GDP report from Commerce Department Thursday is expected to show the U.S. economy grew 2.1% in the third quarter. Investors will also be looking out for home sales data this week.
Hiring reaches a turning point: Should bosses hire now or...
As the economy slows, some firms are scaling back hiring or cutting workers while others add staff. How are they deciding?
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