Estimates Show S&P 500 EPS Bottoming In Mid-2023

Originally posted on December 24, 2022

It was exactly one year ago, 12/24/21 – I checked in with former neighbor who lived next door to me in a high-rise condo in downtown Chicago. She was a nurse at one of the more reputable Chicago hospitals, and in her early 40s she developed an aggressive form of breast cancer, and I was trying to stay in touch with her and see how she was progressing.

Anyway, one year ago today, she sent me the following note: “MRI was good. Cancer hasn’t spread to my brain… It was a good day. (Smiley face).”

After reading that, I remember thinking, “And I’m worried about stocks and bonds…”.

Live your life. Enjoy every day. It can change so fast… And she’s still improving, which is good news.

The Pattern

This blog has been posting this table that is updated weekly from the IBES data by Refinitiv report, and it’s gotten my attention in the last few weeks that Q3 ’23’s slow downward progression has ebbed considerably, and “expected” Q4 ’23 S&P 500 EPS growth is actually being revised higher since July 1 ’22.

Don’t ignore that change, but also (and the reason it’s highlighted today on it’s own so that readers take notice and continue to read this blog) let’s see how and if these growth rates change starting with the release of Q4 ’22 S&P 500 earnings reports around January 10th, ’23.

These patterns matter: you’ve got the best minds on wall Street – both the bottom-up estimates of all the S&P 500 components – and then the “strategist” or top-down estimates by the Mike Wilson’s of Morgan Stanley and the various gurus that you hear daily on CNBC and Bloomberg as well as Fox News, putting pencil to paper and publishing S&P 500 EPS and revenue estimates for future periods.

It’s foolish to ignore this data, but there is still much missing in terms of context.

Still, S&P 500 EPS estimates that are gradually revised higher over time is a powerful tell. The narrative will always change.

What this is telling us today – and it could very well change – is that the S&P 500’s EPS weakness is expected to revert to sequential growth around the middle of calendar 2023.

The $64,000 question is then, if the stock market is a discounting mechanism, when does the S&P 500 start to reflect a return to growth for S&P 500 EPS?

Not shown, and I’ve told readers to wait and see what 2023 guidance looks like, is that the first two quarters of 2024, in terms of S&P 500 EPS growth are also holding firm and not seeing negative revisions.

Summary / conclusion

Take this for what it’s worth right now. 2023 guidance will be very important to how the S&P 500 EPS estimates change starting in early January ’23.

Ed Yardeni still has a $215 S&P 500 EPS estimate for full-year 2022, even though Q3 ’22 S&P 500 EPS in terms of the bottom-up estimate wound up above $55 per share at $55.91 currently, which implies, if we complete the math, that the Q4 ’22 S&P 500 EPS will be around $50 or below if Ed’s $215 S&P 500 EPS projection bears fruit.

Ed’s got much street cred – he is the dean of S&P 500 EPS forecasting. His call in 2020 around Covid and the shutdown was very accurate and that’s the kind of “macro” that makes EPS forecasting very difficult.

Next week will be the final 2022 S&P 500 Earnings Update. Hope you are getting some good use from this data.

Take everything here as one person’s opinion and take it with a substantial grain of salt. All data is sourced from IBES data by Refinitiv, but the spreadsheets and what is done with the data is all this blog’s work. Past performance is no guarantee of future results.

Thanks for reading…

Original Post

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