By Chantal Marx.
4Q23 US earnings season kicked off on Friday
The 4Q23 US earnings season officially kicked off on Friday with several major banks releasing results and is expected to continue gaining momentum this week.
The mood among analysts coming into this earnings season has again been upbeat but a little less positive than at the start of the quarter under review in October. This is mainly due to an expected recession in the US seemingly not materialising in 2023, resulting in some caution from analysts heading into 2024. On 30 September, consensus was for 4Q23 earnings to grow 8% off revenue growth of 3.9%. The current consensus view is for 1.3% growth in earnings off 3.1% growth in revenue. Results are expected to be supported by Communication Services, Utilities, and Consumer Discretionary while Energy, Materials and Healthcare are expected to drag.
Companies have also mostly been negative in terms of guidance for this quarter, and while we understand that there is a president of "under promising and over delivering" among US companies, slightly more companies, proportionally speaking, were negative on 4Q23 than what is usual.
To date, 29 S&P 500 companies have reported results with 11 reporting better-than-expected revenue, seven reporting in-line numbers and 11 disappointing on the top line. So far, 27 companies have beaten on the bottom line, with one company meeting expectations and one coming short of forecasts. Sales growth has averaged 6.6% and average earnings growth 0.6%. The revenue surprise factor is 0.7% and the earnings surprise factor is 8.2%. The number of companies that have reported is still quite small, but this week should provide us with much greater clarity in terms of how this reporting cycle will unfold.
The S&P 500 is currently trading on a 12-month forward PE of 19.7 times - above the five-year average (19.1) and above the 10-year average (17.9). There is still substantial uncertainty in the market around the near-term prospects for companies as the inflation/interest rate/recession debate rages on. Depending on how this earnings season plays out and where investors settle on the debate, there could be a potential "pushing out" of a rebound in US earnings or perhaps an improvement in expectations considering possibly easier monetary policy. Currently, analysts are quite optimistic on the first quarter as well as 2024. For 1Q24 analysts are projecting earnings growth of 5.7% on revenue growth of 4.0%. For calendar year 2024, analysts expect earnings growth of 11.8% and revenue growth of 5.5%.
