HAIL - S&P 500 Earnings Yield The Highest Since Mid-March 2023

2023-10-23 14:55:00 ET

Summary

• Worries over interest rates, a too-strong economy, more fed funds rate increases, are keeping a lid on stock gains even after good earnings.
• Investors are now in the middle of what is typically the best seasonal period of historic returns for the S&P 500, i.e. the October, November, December time frame.
• It’s a do-or-die moment for the S&P 500, and the mega-cap tech earnings reports could save (or sink) the uptrend.

Roughly 16% of the S&P 500’s market cap will report this coming week, with Microsoft ( MSFT ) and Alphabet ( GOOG / GOOGL ) on Tuesday, Meta ( META ) on Wednesday and then Amazon ( AMZN ) on Thursday, all releasing their September ’23 quarter-end financial results after the close.

JPMorgan ( JPM ), Citigroup ( C ) and Wells Fargo ( WFC ) all had fairly solid Q3 ’23 earnings releases on Friday morning, October 13th, and all three stocks are trading below their opening highs from that morning. Wells Fargo has held up the best, but JPMorgan and Citi look sickly.

Worries over interest rates, a too-strong economy, more fed funds rate increases, are keeping a lid on stock gains even after good earnings.

Can the mega-cap technology earnings reports change the trend?

S&P 500 data:

• The forward four-quarter estimate (FFQE) fell to $238.95 this week from the week prior's $239.22;
• The P/E fell to 17.6x after this week’s 2.4% decline in the S&P 500, versus the P/E last week of 18x;
• The S&P 500 earnings yield jumped to 5.66% as of the Friday, Oct. 20th close. This is the highest S&P 500 earnings yield since the week of March 17, ’23, or the middle of the Silicon Valley Bank ( SIVBQ ) collapse, when the EY also closed at 5.66%;
• Per the Refinitiv data, just 86 S&P 500 companies have reported their Q3 ’23 financial results thus far, with the “upside surprise” for earnings being 6.9%, and the revenue “upside surprise” being +0.8%; The upside surprise or beat rates will mean more after this coming week’s results.
• 158 companies are expected to report this coming week, per Refinitiv;

Summary / conclusion: The negativity and sentiment have left the set-up for Q3 ’23 earnings, particularly the mega-cap tech companies, in good position as even mild EPS and revenue beats might see a post-earnings pop in the stock prices, but the fact is that’s a slippery slope as well, since what really matters is how the stocks (any stock) perform into year-end ’23.

Investors are now in the middle of what is typically the best seasonal period of historic returns for the S&P 500, i.e. the October, November, December time frame.

There are other companies of interest reporting this coming week, including Coca-Cola (KO), Boeing (BA), IBM (IBM), Merck ( MRK ) and Intel (INTC).

Here’s the chart that seems to be getting the most attention, cut-and-pasted from @Heisenburg on X.

It’s a do-or-die moment for the S&P 500, and the mega-cap tech earnings reports could save (or sink) the uptrend.

Take everything here with substantial skepticism and a healthy dose of salt. The S&P 500 EPS data is sourced from IBES data by Refinitiv. This is all one person’s opinion and past performance is no guarantee of future results. The above is in no way expected to represent a recommendation or advice. Readers should gauge your own appetite for market volatility and adjust your portfolios accordingly. This information may or may not be updated, and if updated, may not be done in a timely fashion.

Thanks for reading.

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

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