Earnings season sparks hopes of upside surprises

Mitchell Hartman Oct 10, 2023
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Earnings season sparks hopes of upside surprises

Mitchell Hartman Oct 10, 2023
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The second week of October is the start of the fourth quarter, and that means corporate earnings reports for the third quarter — July through September — are upon us.

The earnings season officially kicks off with a whole raft of mega-banks — J.P. Morgan Chase, Wells Fargo, BlackRock, Citigroup — reporting their results on Friday. But some results trickle out before then. We got PepsiCo today, which did pretty well, beating expectations. Delta and Walgreens will be out Thursday.

Coming after three negative earnings quarters for the S&P 500, expectations are low. But hopes for an upside surprise, as always, run high.

Companies in the S&P 500 have posted earnings losses of 4.7%, 1.9%, and 4.1% over the last three quarters. And FactSet predicts another drop in year-over-year profits — of 0.3% — for the quarter that just ended.

Leaving investment analysts… optimistic? 

“The worst of the earnings recession is coming to a close,” said Quincy Krosby, chief global strategist at LPL Financial. “We’ve had negative earnings growth, yet companies have actually surprised to the upside.”

And this is actually what happens most of the time, said Sam Stovall at CFRA Research.

“54 of the last 56 quarters saw actual results come in higher than estimates,” he said.

So earnings might well end up in the black this quarter. Which would be pretty good, Stovall said, considering that the years before, coming through the pandemic, were crazy-hot. 

“In 2021 earnings were up 47%, and then up 4.5% for all of 2022,” he said. “So really you could say year-on-year comparisons were fairly challenging.”

The last few months have been fairly challenging for the stock market.

A positive earnings season could help turn that around, said Jay Hatfield, CEO at Infrastructure Capital Advisors. 

“We’re optimistic that the stock-pricing reaction will be positive, because the market was quite weak, expectations are pretty low,” he said.

Hatfield is bracing for rough earnings reports in a few sectors: small regional banks that are highly exposed to commercial real-estate risk, and multinationals trying to sell abroad in a weak global economy. 

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