The latest earnings season has brought a massive surprise to the corporate world – the fourth quarter of 2023 is on track to be the most profitable yet. Despite concerns about the macroeconomic landscape and its impact on consumer sentiment, companies have managed to exceed expectations halfway through the earnings season. This unexpected trend can be attributed to various factors such as reduced expectations, cost controls, efficiencies, and easing input costs. Notable members of the S&P 500, including Amazon, Meta, Apple, Chevron, ExxonMobil, Merck, and Bristol Myers Squibb, have reported significant earnings beats, resulting in a noteworthy increase in Q4’s growth rate. LSEG (formerly Refinitiv) now forecasts an impressive 8% rise in earnings growth for this season, surpassing the 4.7% estimate from just three weeks ago.
The remarkable earnings season has been characterized by stronger-than-expected results across three key sectors – energy, healthcare, and technology. Energy companies have outperformed predictions with 90% of them beating earnings estimates, yielding profits nearly 14% higher than expected. Similarly, in the healthcare sector, 85% of companies have exceeded bottom-line expectations, resulting in earnings approximately 11% above projections. The technology sector also showcased impressive performance, with 84% of companies delivering earnings beats that surpassed expectations by over 5%.
The aggregate earnings per share growth rate for the S&P 500 in Q4 now stands at an impressive 7.8%, surpassing the 7.5% growth witnessed in Q3 and becoming the highest recorded for the year. Notably, 80% of S&P 500 companies have outperformed estimates, slightly exceeding the typical trend. Earnings have surpassed expectations by more than 6%, reflecting the resilience of the corporate sector. While this figure falls short of the 7% to 8% upside observed in the previous two quarters, it is still a robust outcome.
It is crucial to highlight that the current strong earnings figures are a result of significantly lowered expectations leading into the reporting season. On October 1, 2023, analysts anticipated an 11% year-over-year growth in fourth-quarter earnings for the S&P 500, as reported by LSEG. Although the earnings landscape has considerably improved since the start of 2024, the results remain below the optimistic predictions made merely four months ago. While the Q4 results have been impressive, there is a lack of positive momentum looking ahead. Both first-quarter and full-year 2024 earnings estimates have been revised downwards since January 1, reflecting the cautious guidance given by many companies during this earnings season.
The unexpected surge in corporate profits during the fourth quarter of 2023 has undoubtedly caught the market off guard. The combination of reduced expectations, diligent cost controls, and easing input costs has contributed to this surprising outcome. Key sectors such as energy, healthcare, and technology have significantly exceeded earnings estimates, further propelling the overall growth rate of the S&P 500. However, it is essential to keep in mind that these strong figures come after a considerable downward revision of earnings expectations during the reporting season. As companies continue to issue cautious guidance, the outlook for future quarters appears uncertain. The fourth quarter of 2023 may turn out to be a notable high point, and cautiousness remains crucial.
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