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<\/a><\/p>\nThe two columns highlighted are Q3 ’23 EPS and revenue growth. Note the cuts to forward EPS and revenue growth this week.<\/p>\n
Remember, stock market return has more to do with liquidity than SP 500 earnings growth.<\/p>\n
What’s even more interesting is that SP 500 EPS is expected to grow in 2024 11% as of this weekend. That’s down from 12% a week or two ago. If the Fed does reduce rates in 2024, investors could be facing a double-barreled tail wind of decent SP 500 earnings growth and easier monetary policy.<\/p>\n
The point for readers is to use caution around SP 500 earnings that are too far in either direction in terms of optimism or pessimism. I wouldn’t be surprised to see the “expected 11% 2024 SP 500 EPS growth get trimmed over the next 7 weeks, possibly to mid-single-digit expected growth.<\/p>\n
The “upside surprise” or beat rate to SP 500 EPS in this Q3 ’23 is still at 7% even with 80% of the SP 500 having already reported. The headlines, the FOMC, the Fed’s statements, the constant negativity in the news media has driven earnings expectations and analyst estimates far too low, as evidenced by the “beat rate” of SP 500 earnings being +6.8%, +7.9% and +7.0% the last three quarters.<\/p>\n
Q4 ’23 is facing very easy comp’s per the above numbers. It should be another healthy quarter for the SP 500 reports.<\/p>\n
Summary \/ conclusion:\u00a0<\/strong><\/em> Take all of the above with substantial skepticism as it represents just one opinion, and it neither advice nor a recommendation. Past performance is no guarantee of future results. Investors are entering into the seasonally-strongest part of the calendar for positive stock returns, and SP 500 earnings were\/are for Q3 ’23 – once again – healthy. Certainly not blow-outs for most but the +5.7% EPS growth for Q3 ’23 as of Friday, 11\/3\/23, is far healthier than the +1.6% expected on for the quarter on 9\/30\/23.<\/p>\nIf you are wondering what to watch, along with SP 500 earnings, for a US economy that might decelerate too quickly, watch corporate high yield credit or “junk” bonds. Corporate high yield had a good week last week – the HYG alone returned 3.18% last week. One metric tracked each week, is the return on high yield credit (HYG) versus the return on investment-grade credit and high yield is still +600 bp’s better YTD as of 11\/3\/23.<\/p>\n
If “duration” starts to catch up to credit, this spread should narrow, and if the US economy does start to decelerate faster than many expect, it’s likely to start to show up in credit spreads first.<\/p>\n
Rightly or wrongly, I’ve always felt that credit spreads were the early-warning detection system for US economic problems.<\/p>\n
Thanks for reading.<\/p>\n
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