Every three months, we take a snapshot of future earnings expectations on the S&P 500 (Index: SPX) around the middle of the current quarter, shortly after most US firms have announced their previous quarter’s earnings.
Since our last update three months ago, S&P 500 earnings expectations have been lowered by a small amount. Expectations for the index’s future earnings per share through the end of 2023 have been cut from $200.27 to $196.02.
This is nearly enough to mark a full recovery from the 2022 earnings recession in the fourth quarter of 2023. Given current forecasts, we believe this threshold will be crossed well into the first quarter of 2024.
The chart below illustrates how the latest revenue outlook has changed relative to previous snapshots:
Standard and Poor’s projections through the end of 2024 show a smaller decline in the earnings per share of this index until that moment. They show that the S&P 500’s earnings per share decreased from $222.93 to $220.70.
About earnings recessions
Depending on who you talk to, an earnings recession has one of two definitions. An earnings recession exists if either earnings fall for at least two consecutive quarters or if there is a year-over-year decline over the past two quarters.
The chart identifies the periods in which the quarter-over-quarter decline in the earnings definition for an earnings recession is confirmed for both the pandemic earnings recession (December 2020-December 2021) and the new earnings recession (March 2022-December 2022) as defined by seen.
The chart regions shaded in light red correspond to the full period in which the S&P 500’s earnings per share remained below (or are projected to remain below) its pre-earnings recession levels.
Using the slightly different year-over-year growth rate measure, analysts at Raymond James are signaling that the S&P 500’s earnings recession is officially over. Here is HistoRy from Markets Insider:
Our chart of the day is from Raymond James, which shows that the S&P 500’s earnings recession is officially over.
So far, 92% of S&P 500 companies have reported third-quarter earnings results. Of those companies, 82% beat earnings estimates by an average of 7%, while 59% beat sales estimates by an average of 3%, according to data from Fundstrat.
The results put the S&P 500 on track to see 5% profit growth in the third quarter year-over-year, well ahead of analysts’ estimates of steady growth just four months ago.
There is a difference in terminology for what Raymond James analysts are describing relative to what we are tracking.
We follow Standard & Poor’s in identifying earnings by the quarter in which they are reported, while Raymond James identifies them by the calendar quarter in which they occur.
What they identify as Q3-2023 earnings is what we would identify as Q4-2023.
That descriptive change aside, Standard & Poor’s earnings estimates as of Nov. 8, 2023 put the fourth quarter 2023 year-over-year earnings growth rate just below the water mark. They are well on track to record positive year-on-year growth in Q1 2024.
Our next look at the future expected earnings of the index will be three months from now.
Silverblatt, Howard. Standard & Poor’s. S&P 500 Earnings and Valuations. [Excel Spreadsheet]. November 8, 2023. Accessed November 8, 2023.
Editor’s note: The bullet points for this article were selected by Alpha’s research editors.