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Perspectives

Q1 2023 Earnings Update

by Fortem Financial April 24, 2023

1Q Earnings Marginally Ahead Of Initial Estimates

After the second week of earnings reports, growth rates continue to improve marginally compared to initial estimates and now are expected to decline -4.7%, a slight improvement from last week’s -4.8%. Furthermore, sales are now expected to grow 1.9% which means margin contraction remains the story as higher costs weigh on profits. Perhaps most notable is the deceleration in financial sector earnings growth after the initial large banks reported. Growth now sits at 6.8% compared to 7.5% last week, still ahead of initial estimates.

S&P 500 1st Quarter Earnings Scorecard

For All The Talk Of A Strong Start To Earnings Season, Annual Estimates Still Sliding

It feels as though many of the headlines related to earnings season are suggesting it has been strong and while by some measures it’s coming in better than expected the earnings outlook for the remainder of the year and next continues to deteriorate. 2024 estimates are down to $246 and this year still sits at the $220 mark. Sure, companies are beating lower estimates, but future outlooks are not being revised higher.

2023 & 2024 S&P 500 EPS Progression

Korean Exports Stabilizing, Historically a Positive Sign for S&P EPS

On the bright side, the year-over-year percentage change in Korean exports, which has a strong positive relationship with the year-over-year percentage change in NTM EPS, is showing some stabilization. While NTM EPS may slide lower in the next two quarters, the export data would suggest an end may be in sight. This goes against much of our thinking from a macro perspective but is worth keeping an eye on as an end to the “earnings recession” would be one item necessary to get more bullish. However, the weakening employment picture would likely have a larger impact on earnings.

South Korea Exports Y/Y vs S&P 500 NTM EPS Y/Y

Valuation Remains A Hurdle For Many Market Participants

One of the more challenging aspects of today’s market is knowingly investing in equities when they continue to trade at a multiple that is more than 18x with interest rates and inflation at higher levels. We know from history that valuations are not a good timing tool when it comes to buying stocks but for longer-term investors adding to equities when multiples are low has proven to be a profitable investment strategy.

S&P 500 NTM P/E with Long-Term Average

Source: Strategas

Market and Index Changes for the Week Ending 4/21/2023

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.

 

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

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