Q3 earnings reports continue to show that companies are defying the doom-and-gloom outlook. While the earnings picture is not extraordinary, it has proven to be more stable and resilient than anticipated.
The latest Q3 results exceeded expectations, demonstrating positive earnings growth for the first time in three consecutive quarters of declines. The modest growth, taking into account the current stage of the economic cycle, is a testament to the economy’s resilience in the face of significant Fed tightening.
Surprisingly, the U.S. economy has exhibited impressive growth momentum in 2023 Q3, which was not anticipated by economists a year ago. However, it’s foreseeable for growth to moderate given the cumulative Fed tightening and the expectation of higher-for-longer interest rates.
The earnings implications become evident as estimates for the future periods are adjusted accordingly. The projections for 2023 Q4 and the following three quarters for the S&P 500 index present a cautious outlook.
The data reveals that 2023 Q4 earnings are expected to decrease by -0.2% while revenue forecasts show a rise of +2.4%. Despite the recent modest growth, the previous three quarters had witnessed declining earnings. However, the chart indicates a trend of increasing revenue growth over the upcoming quarters.
According to the chart, projections do not foresee an earnings recession in the coming three quarters, and there is an upward trend in revenue growth across this period.
When observing the annual earnings outlook, it’s apparent that the long-feared recession is not on the horizon within the next two years.
Over the past year, there has been a persistent argument from earnings recession proponents that estimates were detached from the actual economic reality and needed a substantial downward correction. This led to significant negative estimate revisions, particularly in sectors like Construction, Consumer Discretionary, Technology, and Retail.
However, estimates began to stabilize in April 2023 and even saw an increase in several major sectors, including Technology. While this favorable trend remained in place, estimates started declining again in October 2023.
The recent negative revisions to the earnings forecasts raise concerns, as it marks a reversal from the period of stabilization and improvement in estimate revisions. While one explanation could be a tactic by management to easily surpass lowered expectations, the worrisome perspective is that this indicates the initiation of the long-prophesied negative earnings trend.
Despite these developments, it remains optimistic that the former explanation holds true, although there will be close monitoring of this trend.
The Upcoming Reporting Docket
Earnings season is ongoing, and this week will feature reports from companies such as AutoZone (AZO), Broadcom (AVGO), and Campbell Soup (CPB), among others. This time marks a period of overlap, where the previous reporting cycle hasn’t entirely concluded, and the new one has begun.
AutoZone’s report is set to commence the 2023 Q4 reporting cycle, followed by releases from Broadcom and Campbell Soup, which will be clubbed as part of the 2022 Q3 bucket.
Outlook for the Semiconductor Stock
The semiconductor market continues to show promising growth, with increasing demand for Artificial Intelligence, Machine Learning, and Internet of Things. Zacks Names #1 Semiconductor Stock, indicating strong potential for growth and an expanding customer base. This is a significant indicator of the boom expected in the global semiconductor manufacturing sector from $452 billion in 2021 to $803 billion by 2028.
If you are interested in exploring the overall earnings picture and expectations for the upcoming periods, take a look at the weekly Earnings Trends report for a detailed analysis.
Despite the skepticism surrounding earnings projections, the current data sheds a positive light on the future. The recent stabilization and improvement in earnings hints at a favorable outlook, signaling a resilient earnings landscape.
It’s crucial to closely monitor the ongoing trend in estimates and remain optimistic about the potential for robust performance from companies despite the skepticism surrounding future earnings projections.
For further insights and perspectives, consider referring to the original article on Zacks.com.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Nasdaq, Inc.