Despite persistent inflation concerns, substantial growth is anticipated in the Q3 earnings season.

What is Wall Street anticipating?

Analysts estimate an 8% year-over-year profit increase for the fourth quarter (Q4) of 2023 during the forthcoming earnings season. Earnings growth is anticipated to be 1% for the entire year of 2023, while experts anticipate a significant 12.2% annual profits increase for 2024.

The earnings outlook is stronger

Compared to prior quarters, the S&P 500's Q3 earnings outlook seems a little bit more promising. Analysts have not reduced their earnings expectations as much as they generally do at this time, despite the fact that the number of businesses providing negative profit guidance is in line with the 10-year average. This means that the anticipated earnings decrease for the third quarter will be the least of the four consecutive quarters of losses.

Lower reductions in estimate revisions

In comparison to the average, experts have cut their profit projections for the third quarter of 2023 by a lesser amount. FactSet estimates that profits per share for the third quarter will have declined by only 0.2% since June 30, which is less than the 5-year average and the 10-year average. The S&P 500 is anticipated to post overall year-over-year profit growth of -0.2% for the third quarter, the fourth straight quarter of growth but with the weakest growth throughout this time.

Eight of the eleven sectors, led by the consumer discretionary and communication services sectors, are anticipated to have a year-over-year profit increase. On the other side, a fall in earnings is anticipated for the Energy and Materials industries.

Real estate and consumer discretionary to drive revenue growth.

According to statistics from FactSet, the S&P 500 is expected to record a third-quarter revenue increase of 1.5% over the same period last year. If this is accurate, the index will have seen revenue increase for 11 straight quarters. While the Energy and Materials sectors are anticipated to see a dip, the Consumer Discretionary and Real Estate sectors are anticipated to lead in revenue growth.

10-year average guidance

The proportion of S&P 500 businesses providing negative earnings per share (EPS) forecast for the third quarter of 2023 is equal to the 10-year average. 42 firms out of the 116 that have published EPS guidance for this period have offered positive guidance, compared to 74 that have provided negative guidance.

Although it is significantly higher than the 5-year average, the proportion of firms providing negative guidance is in line with the 10-year average.

(Sources: ig.com, factset.com)