SDVY - Projected Earnings Growth Swings Positive
2023-08-15 02:10:00 ET
Summary
- As the year began much of the talk was centered around whether the U.S. economy would fall into recession in 2023.
- The year is only two-thirds done, but a recession does not seem likely this year, and our firm has been in the no recession camp since the year began.
- With second quarter earnings reporting season nearly complete, corporate earnings are not looking too bad either.
As the year began, much of the talk was centered around whether the U.S. economy would fall into recession in 2023. The year is only two-thirds done, but a recession does not seem likely this year, and our firm has been in the no recession camp since the year began.
We have written a couple of times that a technical recession was early 2022 when real GDP was negative in Q1 2022 and Q2 2022, yet not your typical recession.
With second quarter earnings reporting season nearly complete, corporate earnings are not looking too bad either. It appears the second quarter earnings for S&P 500 companies will be down approximately -3.8% on a year-over-year basis.
Excluding the energy sector, earnings are expected to be up 2.5%. Ex-energy revenue growth is expected to be up 4.3%. Inflation is serving as a tailwind for both these figures.
As the below table from Refinitiv's This Week in Earnings report shows , high single-digit year-over-year quarterly earnings growth is expected to begin in the third quarter of 2023, leading to double-digit year-over-year earnings growth for 2024.
With respect to earnings revisions, they can be volatile; however, the revisions are trending positive in that estimates revised up are exceeding estimates revised lower.
The equity market does not move higher in a smooth line. On a year-to-date basis, the total return on the S&P 500 Index at the time of this writing is up a strong 18.1%.
It would be healthy for the market to consolidate some of these gains in the near term, which might mean an equity market pullback or market consolidation by moving sideways over time.
September and October can be volatile months and they are just around the corner. If the market experiences some near term volatility, this could set up a rally into year-end, which might lead to more recession chatter for 2024.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Projected Earnings Growth Swings Positive