Investment Strategy Brief:
A Break-Even Quarter
October 23, 2023
Below is a transcript of this week’s video.
Hello, this is Ilona Vovk with Investment Strategy at Glenmede.
As we enter the heart of Q3 earnings season, analyst expectations for S&P 500 earnings point to close to break-even profit growth. This comes after, three consecutive quarters of declining profits, extending an earnings recession that began late last year. Current analyst expectations are for a robust recovery from the earnings recession after the 3rd quarter. However, such projections should likely be looked at with some skepticism given the tendency for downward revisions, with the robust expectations for Q4 being a likely candidate for revisions.
Now with ~17% of the S&P 500 reporting thus far for the third quarter, the blended earnings growth rate, which combines actual results with consensus estimates for firms that have yet to report, currently sits at -0.7%. Solid growth from the communication, consumer discretionary and financial sectors is expected to be offset by decline in the energy, materials, and healthcare sectors amid resilient demand but ongoing difficulties with fluctuating commodity prices and elevated input costs.
Consensus estimates once forecasted robust earnings growth of 8% for the current quarter. But those projections were revised down to the current expected decline as the quarter neared its end. For this reason, earnings surprises may not drum up much market enthusiasm beyond the specified reporting company. This is, however, not unusual since robust projections are often conveyed at the start but revised downward heading into reporting seasons when actual results are measured against those estimates.
Current consensus based on bottom-up analyst estimates for each company sits at $221 for 2023 S&P 500 EPS, however the consensus of strategists that provide top-down estimates, currently expect a more modest $207. In 2024, bottom-up estimates sit at $247 while strategist consensus estimates expect $230. Therefore, strategists remain more cautious in their outlook at this point.
Additionally, business surveys such as the ISM’s manufacturing purchasing managers index still points to a less-than-robust environment, which is likely to be reflected in future profit trends. ISM Manufacturing PMIs are leading economic indicators derived from surveys of private sector purchasing managers in the manufacturing sector. A PMI above 50 signals growth, while a PMI below 50 signals a slowdown.
To summarize, as we enter the heart of Q3 earnings season, analyst expectations for S&P 500 earnings point to close to break-even profit growth at this point; as the end of the third quarter approached, earnings expectations dropped from +8% to near 0%, with the declines led by energy, materials and health care; Analyst estimates going forward point to an eventual recovery, but may still be subject to the usual downward revisions or more; annual EPS forecasts for year of 2023 and 2024 have also moderated, but strategists remain even more cautious in their outlook and Business surveys seem to align with the perspective of the strategists, still pointing to a less-than-robust outlook for corporate earnings.
And with that, thank you for listening! And please don’t hesitate to reach out with any questions.
This material is intended to review matters of possible interest to Glenmede Trust Company clients and friends and is not intended as personalized investment advice. When provided to a client, advice is based on the client’s unique circumstances and may differ substantially from any general recommendations, suggestions or other considerations included in this material. Any opinions, recommendations, expectations or projections herein are based on information available at the time of publication and may change thereafter. Information obtained from third-party sources is assumed to be reliable but may not be independently verified, and the accuracy thereof is not guaranteed. Outcomes (including performance) may differ materially from any expectations and projections noted herein due to various risks and uncertainties. Any reference to risk management or risk control does not imply that risk can be eliminated. All investments have risk. Clients are encouraged to discuss any matter discussed herein with their Glenmede representative.
Feature one
Use text and images to tell your company’s story. Explain what makes your product or service extraordinary.
Feature two
Use text and images to tell your company’s story. Explain what makes your product or service extraordinary.
Feature three
Use text and images to tell your company’s story. Explain what makes your product or service extraordinary.