Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
- The overall picture emerging from the Q2 earnings season has turned out to be good enough; not great, but not bad either. Importantly, Q2 results and guidance for the current and coming periods have turned out to be better relative to pre-season fears.
- Estimates for the last two quarters of this year and for next year have started coming down, even though positive revisions to the Energy sector continue to partly offset negative revisions elsewhere.
- The +2.4% earnings growth expected for the S&P 500 index in 2022 Q3 is down from +7.2% at the start of the period. Excluding the Energy sector, Q3 earnings are expected to be down -4% at present, a significant decline from +2.1% in the beginning of July.
- Looking at the calendar-year picture, total S&P 500 earnings are expected to be up +6.5% in 2022 and +7.3% in 2023. On an ex-Energy basis, total 2022 index earnings would be up +0.1% (instead of +6.5%, with Energy).
The overall corporate profitability picture emerging from the Q2 earnings season, with a little over 90% of S&P 500 results out, continues to show stability and resilience in key earnings drivers like consumer and business spending.
While this stability and resilience run contrary to worries of an imminent economic slowdown or even a recession, we are starting to see tell-tale signs of emerging weakness in both consumer and business spending. The Walmart (WMT - Free Report) pre-announcement is probably not solely due to weakness in lower-income households, but that consumer segment is nevertheless feeling the squeeze as we heard from companies in a variety of industries, including AT&T (T - Free Report) . Other households seem to be doing just fine, as we heard from banks, credit card operators and others.
With respect to business spending, we have started seeing a squeeze on advertising budgets and hiring plans, but Microsoft (MSFT - Free Report) and others didn’t see anything disconcerting with respect to spending on software and other services. That said, it is reasonable to expect some moderation in demand trends going forward as the full extent of the Fed’s tightening cycle permeates through the broader economy.
A slowdown has gotten underway, but there is nothing in the earnings data, management commentary and guidance that would suggest the U.S. economy heading into a major economic downturn.
That said, estimates have started coming down, with the overall revisions trend turning negative even after accounting for the persistent favorable revisions trend enjoyed by the Energy sector.
You can see this in the revisions trend to Q3 estimates in the chart below.
If we look at the evolution of Q3 earnings growth expectations on an ex-Energy basis, the expected growth rate has dropped from +2.1% on July 6th to -4% today. The chart below shows the expected aggregate total earnings for full-year 2023 have evolved on an ex-Energy basis.
As you can see above, aggregate S&P 500 earnings outside of the Energy sector have declined -3.3% since mid-April, with double-digit percentage declines in Retail (down -14.5%) and Construction (-11%), and high single-digit percentage declines for the Tech (-9.1%), Industrial Products (-8.7%) and Consumer Discretionary (-8.9%).
The Overall Earnings Picture
Beyond Q2, the growth picture is expected to modestly improve, as you can see in the chart below that provides a big-picture view of earnings on a quarterly basis.
The chart below shows the overall earnings picture on an annual basis, with the growth momentum expected to continue.
As strong as the full-year 2022 earnings growth picture is expected to be, it’s worth remembering that a big part of it is due to the unprecedented Energy sector momentum. Excluding the Energy sector, full-year 2022 earnings growth for the remainder of the index drops to only +0.1%.
There is a rising degree of uncertainty about the outlook, reflecting a lack of macroeconomic visibility in a backdrop of Fed monetary policy tightening. The evolving earnings revisions trend will reflect this macro backdrop.
Where Will Stocks Go…
If Biden Wins? If Trump Wins?
The answers may surprise you.
Since 1950, even after negative midterm years, the market has never had a lower presidential election year. With voters energized and engaged, the market has been almost unrelentingly bullish no matter which party wins!
Now is the time to download Zacks' free Special Report with 5 stocks that offer extreme upside for both Democrats and Republicans…
1. Medical manufacturer has gained +11,000% in the last 15 years.
2. Rental company is absolutely crushing its sector.
3. Energy powerhouse plans to grow its already large dividend by 25%.
4. Aerospace and defense standout just landed a potentially $80 billion contract.
5. Giant Chipmaker is building huge plants in the U.S.
Hurry, Download Special Report FREE >>
Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
The overall corporate profitability picture emerging from the Q2 earnings season, with a little over 90% of S&P 500 results out, continues to show stability and resilience in key earnings drivers like consumer and business spending.
While this stability and resilience run contrary to worries of an imminent economic slowdown or even a recession, we are starting to see tell-tale signs of emerging weakness in both consumer and business spending. The Walmart (WMT - Free Report) pre-announcement is probably not solely due to weakness in lower-income households, but that consumer segment is nevertheless feeling the squeeze as we heard from companies in a variety of industries, including AT&T (T - Free Report) . Other households seem to be doing just fine, as we heard from banks, credit card operators and others.
With respect to business spending, we have started seeing a squeeze on advertising budgets and hiring plans, but Microsoft (MSFT - Free Report) and others didn’t see anything disconcerting with respect to spending on software and other services. That said, it is reasonable to expect some moderation in demand trends going forward as the full extent of the Fed’s tightening cycle permeates through the broader economy.
A slowdown has gotten underway, but there is nothing in the earnings data, management commentary and guidance that would suggest the U.S. economy heading into a major economic downturn.
That said, estimates have started coming down, with the overall revisions trend turning negative even after accounting for the persistent favorable revisions trend enjoyed by the Energy sector.
You can see this in the revisions trend to Q3 estimates in the chart below.
If we look at the evolution of Q3 earnings growth expectations on an ex-Energy basis, the expected growth rate has dropped from +2.1% on July 6th to -4% today. The chart below shows the expected aggregate total earnings for full-year 2023 have evolved on an ex-Energy basis.
As you can see above, aggregate S&P 500 earnings outside of the Energy sector have declined -3.3% since mid-April, with double-digit percentage declines in Retail (down -14.5%) and Construction (-11%), and high single-digit percentage declines for the Tech (-9.1%), Industrial Products (-8.7%) and Consumer Discretionary (-8.9%).
The Overall Earnings Picture
Beyond Q2, the growth picture is expected to modestly improve, as you can see in the chart below that provides a big-picture view of earnings on a quarterly basis.
The chart below shows the overall earnings picture on an annual basis, with the growth momentum expected to continue.
As strong as the full-year 2022 earnings growth picture is expected to be, it’s worth remembering that a big part of it is due to the unprecedented Energy sector momentum. Excluding the Energy sector, full-year 2022 earnings growth for the remainder of the index drops to only +0.1%.
There is a rising degree of uncertainty about the outlook, reflecting a lack of macroeconomic visibility in a backdrop of Fed monetary policy tightening. The evolving earnings revisions trend will reflect this macro backdrop.
Where Will Stocks Go…
If Biden Wins? If Trump Wins?
The answers may surprise you.
Since 1950, even after negative midterm years, the market has never had a lower presidential election year. With voters energized and engaged, the market has been almost unrelentingly bullish no matter which party wins!
Now is the time to download Zacks' free Special Report with 5 stocks that offer extreme upside for both Democrats and Republicans…
1. Medical manufacturer has gained +11,000% in the last 15 years.
2. Rental company is absolutely crushing its sector.
3. Energy powerhouse plans to grow its already large dividend by 25%.
4. Aerospace and defense standout just landed a potentially $80 billion contract.
5. Giant Chipmaker is building huge plants in the U.S.
Hurry, Download Special Report FREE >>
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