Deutsche Bank’s Jim Reid notes that the pattern of gradual downgrades before the start of the earnings season has returned to normal.
Like the rest of the quarterly earnings, we should expect earnings to improve as we move into earnings season and the “later estimate beats” arrive. This quarterly revenue pattern is shown above in his colleague’s graph binky Chadha.
Here is Reid:
“Q2 2023 is currently back close to the average pattern of progressive downgrades prior to the start of earnings. The previous three quarters have seen much steeper downgrades as can be seen. So normal service is resuming for now. As the chart and report point out, average earnings then beat an average of about 4.9%, not far off Binky’s prediction for the second quarter.
Overall, Binky’s team sees S&P 500 EPS at $55.6 (consensus $53.4), implying -3.4% year-over-year decline, marking the third consecutive quarter of negative growth. Excluding Energy, they see growth turning positive at +1.4% year-on-year. In sequential quarterly terms, after adjusting for the strong seasonality of the second quarter, they forecast robust growth of +2.0% (qoq sa), which would mark the second consecutive quarter of a sequential rebound after the rise in 3.5% qoq sa in Q1 2023. This recovers more than half of the -8.5% decline from Q2 2022 to Q4 2022.”
Reid also notes two other interesting factors in his report (which is highly recommended):
-During average earnings seasons, the S&P 500 rose 2% in the first four weeks of release.
-The earnings season makes up about 31% (16 weeks) of the calendar year, so its 8% contribution represents a substantial portion of annual US equity returns.
Have a good week-end . . .
