QVML - S&P 500 Earnings: S&P 500 EPS Face Easy Compare Vs. Q4 '22

2023-11-27 03:08:00 ET

Summary

• Q4 ’23 S&P 500 EPS has a weak comparison vs. year ago, to be sure, and if we “ex-Energy” from Q4 ’22, the quarter was even weaker at -7.2%.
• The one critical aspect to earnings reports that began last week with Walmart and now will continue through year-end ’23, is that we see October ’23 quarter end results, which is an additional month after the September ’23 quarter end.
• S&P 500 EPS were revised higher in early August, which was written about here on August 5th, and then again on August 26th ’23, but we are seeing a little giveback for what’s expected for Q4 ’23.

Reviewing Walmart ( WMT ) results this week and looking at the spreadsheet and conference call notes, you can never ignore year-over-year (y.y) comparisons (or should at least factor in comps when writing about companies and stocks), to capture that sometimes considerable influence on earnings results.

Q4 ’23’s estimated S&P 500 EPS growth rate has come down sharply in the last 8 weeks (see more below), but the fact is the S&P 500 faces a weak compare in Q4 ’22, when S&P 500 EPS fell -3.2% and revenue rose +5.8%.

Q4 ’23 S&P 500 EPS has a weak comparison vs. year ago, to be sure, and if we “ex-Energy” from Q4 ’22, the quarter was even weaker at -7.2%.

This graph is shown on occasion to readers – it’s taken from page 1 of the IBES data by Refinitiv report “This Week in Earnings”.

It shows – better than any report I’ve seen – the net income influence of large-cap tech – every reporting season. (I’ll bet every reader can identify at what point in the quarter large-cap technology started reporting earnings.)

Anyway, that’s a normal pattern.

Here’s what’s a little worrisome: the sharp decline in expected Q4 ’23 S&P 500 EPS – that’s more than a 50% reduction in the expected Q4 ’23 S&P 500 EPS growth rate – but look how strong Q3 ’23 S&P 500 actual EPS and revenue have been relative to the expected growth.

Quick question for readers: would we rather have a strong EPS “upside surprise” with low growth expectations, as it was for Q3 ’23, or would we rather see a 2-3% upside surprise or beat rate on a mid- to high-single digit expected growth rate? I truly haven’t thought about that question, and my answer would be it probably depends on what’s happening in the market outside of S&P 500 earnings and revenue growth, i.e., are the economic fundamentals more conducive to “P/E expansion” or “P/E contraction” ?

The above spreadsheet is shown so that readers can gauge what’s happening with forward EPS and revenue growth rates for the S&P 500, since that’s really all that matters to earnings watchers.

To get a bigger picture of what the Street thinks of calendar ’23 and ’24 S&P 500 EPS growth:

This table gives a longer perspective on expected ’23 and ’24 sector growth rates, and if readers are worried about the downward revisions in Q4 ’23 growth rates, note how 2024 full-year EPS growth is about where it was on June 30 ’23.

The Street consensus was expecting +11.7% S&P 500 EPS growth for 2024 on June 30 ’23, and is now expecting +11.4% as of 11/24/23.

Conclusion / summary: The one critical aspect to earnings reports that began last week with Walmart and now will continue through year-end ’23, is that we see October ’23 quarter end results, which is an additional month after the September ’23 quarter end.

The extra month matters.

S&P 500 EPS were revised higher in early August, which was written about here on August 5th , and then again on August 26th ’23, but we are seeing a little giveback for what’s expected for Q4 ’23.

Like the rest of the US economy though and the economic data in 2023, S&P 500 EPS and revenue (more S&P 500 EPS) have surprised to the upside to a greater degree, so let’s see what happens with the “upside surprise” in Q4 ’23.

The fact that S&P 500 EPS faces such a weak compare vs. Q4 ’22 must be factored into your analysis, but is also an indicator that the Q4 ’23 EPS probably won’t be too dramatically lower.

However Q4 ’23 EPS, which start to get reported around January 10th ’24, are all about ’24 guidance too on the part of managements.

All S&P 500 EPS and revenue data are sourced from IBES data by Refinitiv. There are multiple earnings reporting services out there, including FactSet and others, all of which are good in their own way. Take everything on this blog with substantial skepticism. It’s one opinion and it’s not advice or a recommendation. Past performance is no guarantee of future results. Readers should use your own comfort with portfolio volatility and adjust your portfolio accordingly. Capital markets can change quickly, both positively and negatively.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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