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Perspectives

Second Quarter Earnings Season Better than Expected

by Fortem Financial August 8, 2023

2Q Earnings Season 84% Complete

With the majority of earnings season complete, the overall picture is one of better-than-expected earnings and sales. Earnings growth for the quarter is expected to decline -4.2% which is a smaller decline than what was originally expected (-5.7%). Sales are now expected to eke out a small gain at 0.2% versus a decline of -0.6%. The energy sector is where the notable weakness is occurring but with oil prices on the rise again and expectations just about as bad as it gets, the sector is likely at trough earnings.

S&P 500 2nd Quarter Earnings Scorecard

2023 Earnings Moving Higher, 2024 Relatively Unchanged

Full-year 2023 estimates have moved notably higher during this earnings season and are now approaching $221. 2024 on the other hand has not seen as much of an upward revision which is resulting in a narrowing of the 2024 growth rate. It now sits at 11.6% compared. With 2 of the 4 quarters for 2023 earnings reported, a large contraction in earnings for the year is likely off the table.

2023 & 2024 S&P 500 EPS Progression (Source: FactSet)

Technology Prices Ahead Of Expected Earnings Contribution

Looking at the differential between the market cap weight for the sectors and the 2024 expected earnings contribution shows that Technology and Discretionary are punching above their weights. Financials and Energy remain two sectors that are contributing more to earnings than their weight in the index. Over time these figures balance out and thus one may believe a rotation out of Technology into Financials may have the ability to work here.

Difference Between S&P 500 Market Cap Weight & 2024 Expected Net Income Contribution by Sector

On A Company Level, Three Names Make Up The Bulk Of The Tech Difference

Digging deeper into the data shows that more that 80% of that technology difference is a result of just three companies (Apple, Microsoft, & NVIDIA). On the other side of the ledger the difference is much more spread out across the sector. This tells us that the largest companies may be susceptible on earnings misses and perhaps more important from a risk standpoint is that while those companies have the ability to move the market higher, but the reverse can also happen.

Top 15 S&P 500 Companies With The Greatest Divergence Between Market Cap & 2024 Net Income Contribution

Source: Strategas

Market/ Index

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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