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September 9, 20233Q.2023 Earnings Update - S&P 500
Index Earnings
3Q.2023 earnings for the S&P 500 index are increasing based on a bottom-up consolidaiton of earnings estimates by company. Change results since June 30 vary widely by company and sector, but the consolidated change for the S&P 500 index is for annual growth of 0.5%, up from 0.0%. If the forecast is realized, it would mark the first quarter with positive year-on-year earnings growth since 3Q.2022. On average, the consensus estimate will underestimates actual earnings by as much as 610 basis points. As a result, corporate earnings may have additional upside, though it’s
not clear if the growth uplift will be modest or significant. However, its worth pointing out that the consensus estimate for US GDP growth in 3Q has also increased from 0.8% on June-30 to to 2.4% currently.
Sector Earnings
The sectors with the highest estimated growth in 3Q.20203 earnings are Communication Services (+32.6%), Consumer Discretionary (+20.7%), and Utilities (+12.7%). In total, 8 of 11 sectors are projected to have positive growth. In contrast, 3 sectors have estimated declines in 3Q.2023 earnings growtth. Laggards include the Energy (-40.0%), Materials (-22.8%), and Health Care (-11.5%) sectors. The chart below shows changes in sector earnings estimates since June-30:
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Sector Earnings vs Return Momentum
The next chart shows changes in 3Q .2023earnings versus returns by sector. Normally, high return momentum is associated with sectors with positive changes in earnings outlooks. We also tend to see low return momentum for sectors with declining earnings growth. The data strongly supports the positive relationship between earnings and returns. In particular, sectors with the largest changes in forecast earnings include Consumer Discrtionary (XLY), Communications Services (XLC), Information Technology (XLK), and Energy (XLE). The same sectors also had the strongest return momentum relative to Index over the sample period. The market has again rewards outsized earnings with outsized returns.
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See the Signals
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Saffron Capital provides capital market research and insight reporting for informational and educational purposes only. The report does not constitute a solicitation to buy or sell securities. We only provide investment advice to people or entities subject to an investment advisory agreement and given a formal assessment of your financial goals and risk appetite.
Caution Regarding Forward-Looking Statements
Forward projections are valid inputs in any planning or investment process. However, they are not a guarantee of future returns or investment performance. Any opinion about future events (such as market and economic conditions, company performance, security returns, or future security offerings) are forward-looking statements. Forecasts and forward-looking statements, by definition, involve risk or uncertainties, and do not reflect actual knowledge about the future.
