The quarterly earnings results season is set to begin this week. In this regard, consensus forecasts anticipate an annual earnings growth for the S&P 500 of 1.3% (YoY) for the fourth quarter of last year. If this number is confirmed, it could mark the second consecutive quarter of YoY earnings growth for the index. However, this result represents a lower growth rate compared to third-quarter results, which showed an advance of 4.9% YoY. It is noteworthy that analysts considerably reduced their estimates (-6.8%), given that at the beginning of the quarter, they had expected an increase of 8% YoY. This decrease is higher than the 5-year historical average (-3.5%) and the 10-year historical average (-3.3%) for a quarter.
Five of the eleven sectors are projected to report YoY earnings growth, led by the communication services, utilities, and consumer discretionary sectors. On the other hand, the consensus estimates that six sectors will report YoY declines in earnings, led by the energy, healthcare, and materials sectors.
On the sales front, the consensus anticipates a YoY increase of 3.1% (compared to the 3.9% expectation at the beginning of the quarter), which could represent the twelfth consecutive quarter of sales growth if this number is confirmed at the end of the season.
With this combination of factors, the net income margin would be 11%, lower than the 12.2% of the immediately preceding quarter, as well as last year’s 11.2%. Finally, in terms of perspective, analysts expect YoY earnings growth of 6.0% for 1Q24 and 11.8% for the full year 2024.
JP Morgan will kick off on January 12; therefore, investors will be especially attentive to the development of the season due to the rally that took place at the end of 2023, with the resilience in earnings performance, to some extent, as support, along with the perspective that interest rate cutbacks could occur throughout this year.
S&P 500: expected earnings growth for the 4Q23
Source: FacSet