S&P 500 Earnings: Estimates Slip In 2023 / Recession Worries Start To Multiply - Seeking Alpha - Financial Daily News Site

S&P 500 Earnings: Estimates Slip In 2023 / Recession Worries Start To Multiply – Seeking Alpha

S&P 500

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Looking at the capital markets action this week, credit spreads improved, the US dollar fell (as measured by the UUP), the 10-year and 30-year Treasury yields haven’t made new highs in weeks, the PCE deflator data came in as expected, and lower year-over-year, and stocks bounced sharply.

This week’s returns:

  • UUP: -1.38%
  • HYG: +4.81%
  • JNK: +4.87%
  • AGG: +0.94%
  • SPY: +6.59%
  • Nasdaq Comp: +6.8%
  • QQQ: +7.07%

You could call this week just a huge reversal of the 7-8 week trends.

The S&P 500, Nasdaq Composite and the Nasdaq-100 remain very oversold, which is a plus.

The S&P 500’s bounce off 3,800 last Friday was a significant move: as this blog pointed out a number of times, the 3,800 level on the S&P 500 was a 1/3rd retracement of the March ’20 lows to the early January ’22 highs, which is (symmetrically, anyway) a perfect pullback or correction that doesn’t have to indicate a secular bear market is at hand.

S&P 500 data:

  • The forward 4-quarter estimate fell to $233.49 from last week’s $235.22. The last 5-6 weeks have seen the forward estimate gyrate between $234 and $235 until this week;
  • The P/E ratio on the forward estimate rose to 17.7x from last week’s 16.5x based on the 6.2% increase in the S&P 500 this week;
  • The S&P 500 earnings yield fell to 5.62% from 6.03% last week;
  • The Q1 ’22 bottom-up estimate for the S&P 500 rose a penny to $54.85 from $54.84 last week;

Watching expected quarterly EPS and revenue growth rates:

Sp500qtrlygrorates52722

Author

Note the slippage in all the 2023 quarterly growth rates, for both S&P 500 EPS and revenue. These tend to jump around, but the ’23 EPS cuts stood out.

Of the last 7 weeks for the forward 4-quarter estimate, 4 weeks showed sequential declines. The forward estimate tonight of $233.49 is almost exactly where it was on April 15th, 2022.

It’s clear the sell-side is starting to become (at least) a bit more cautious as Q1 ’22 earnings season ends, and those companies reporting a May quarter will soon start to report.

Summary / conclusion:

The Treasury market hasn’t seen higher yields on the 10-year and 30-year for several weeks. Whether inflation rolling over, or worries over a recession starting, there is some tempering of the harsh “stagflation” argument beginning.

The jobs report next Friday, June 3, 2022, will probably reflect another 300K-400K quarter of “net new jobs added” for the US economy.

There has been such a convoluted series of events happen over the last two years, including Ukraine, it’s hard to sort out the market implications for the various moving parts. Let’s sort out the variables:

  • Lower inflation – definite plus for stocks and bonds. This morning’s PCE deflator was a start. Most aren’t on board the “disinflation” theme;
  • Job growth: job losses are great for bonds, bad for stocks. Slower job growth and the potential for wage growth slowing a definite plus, more so for stocks and bonds;
  • Falling dollar: a definite plus particularly for non-US;
  • Economic data: it seemed to me with the stock market the last 3 weeks, worries over the US slipping into a recession seemed to increase markedly.

Remember, for those of who were around in 1994, the FOMC and Greenspan raised rates 6 times, and the total return for 1994 for the S&P 500 was +1%. 1995 was a monster rally in the S&P 500 and that was 13 years into that secular bull market.

Of everything that bounced this week, the high-yield returns were most encouraging. Spreads were widening probably due to duration as much as credit concerns.

It’s all a guess. Take everything here with a grain of salt. None of this is a recommendation or advice.

Thanks for reading.

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Tags: #SampP #Earnings #Estimates #Slip #Recession #Worries #Start #Multiply #Seeking #Alpha

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