IMCV - Q2 2023 S&P 500 Earnings Should Be Just Fine: Watch The Upside Surprise For EPS

2023-07-14 02:40:00 ET

Summary

• I like the financial sector coming into Q2 ’23 earnings, but Bespoke is favoring tech, energy and basic materials.
• The buying in energy stocks the last week – 10 days could lead readers to conclude that the energy sector is poised to rally.
• Q2 2022 was the last real solid quarter for S&P 500 earnings with EPS and revenue growing 8.5% and 13.6% respectively.

Watching the numbers every week by writing the S&P 500 earnings update, helps stay abreast of any changes that might be coming down the pike, although to be frank, the kind of earnings drops that caused 2008 and even 2001 to 2002 only tend to show up suddenly rather than witnessing a slow drop lower.

It wasn’t until July 2008, that the forward 4-quarter estimate posted weekly in the earnings preview here, topped out and began to roll over quickly. After that, the Lehman default did the rest of the damage.

However, as readers know, I like to track other publications' earnings analysis and commentary: Bespoke Research being the main source, but for the first time, Refinitiv published an S&P 500 earnings preview (authored by Tajinder or “TJ” Dhillon) this week, commenting on what Refinitiv expects for Q2 ’23 and Patrick O’Hare at Briefing.com also had a decent write-up on Q2 ’23 expectations.

Here’s a cut-and-pasting from the above sources:

Bespoke

A quick comment on negative sentiment heading into Q2 ’23 earnings season:

I like the financial sector coming into Q2 ’23 earnings, but per the above, Bespoke is favoring tech, energy and basic materials.

Refinitiv

I like this bar chart from Refinitiv’s Dhillon. It shows a -2.5% decay in the expected Q2 ’23 bottom-up estimate of $52.81, which is not as bad as historical averages.

FactSet and John Butter used to put out this metric and it was typically a good “tell”. With the S&P 500 up 16% as of June 30, you can bet analysts are probably going to be less severe with their negative revisions, but we’ll see.

I really like this table: it shows the biggest positive and negative contributors to S&P 500 earnings growth. It gets to the “earnings weight” in the S&P 500 versus most of the focus always being on the “market cap” weight of a stock.

Per the portion not shown, if the top 3 positive earnings contributors are excluded, the “expected” growth rate of -6.4% declines to -9% and if the top 3 negative contributors are excluded, the expected -6.4% improves to -2%.

Stocks with the largest Positive Earnings Revisions

What impresses me about the above stocks is that airlines, resorts, Ford Motor ( F ), etc., are tied to the consumer. Only three tech companies broke the top 20 – Nvidia ( NVDA ), Salesforce ( CRM ), and Intel ( INTC ) – despite the year-to-date tech returns.

Briefing.com

Pat O’Hara from Briefing.com provided his thoughts coming into Q2 ’23 earnings.

Summary/conclusion:

The buying in energy stocks the last week – 10 days could lead readers to conclude that the energy sector is poised to rally. I thought the financial sector had easier compares, since energy sector earnings and revenue growth were stellar in 2022, but energy did start to fade a little as we exited the 4th quarter of 2022.

One clue for readers is to look for easier compares from the year prior: Q2 ’22 was the last real solid quarter for S&P 500 earnings with EPS and revenue growing of 8.5% and 13.6% respectively. For Q3 and Q4 ’22, S&P 500 grew EPS +4.4% and -3.2% respectively, and revenue growth dropped to +11.7% and +5.8% respectively in the back half of ’22.

This only being posted to give readers another perspective on the numbers and for readers to see other opinions. Take it all with a grain of salt, and substantial skepticism.

None of this is advice, and past performance is no guarantee of future results. Each reader should gauge your own appetite for market volatility and act accordingly.

Thanks for reading.

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