Quarterly Pattern of Earnings Have Returned to Normal


Jim Reid of Deutsche Bank notes the pattern of gradual downgrades before earnings season begins is back to normal.

As the rest of the quarterly earnings roll out, we should expect earnings to improve as we roll deeper into earnings season and as “later estimate beats” come in. This quarterly earnings pattern is shown above in the chart from his colleague Binky Chadha.

Here is Reid:

“Q2 2023 is currently back close to the average pattern of gradual downgrades before earnings start. The three previous quarters saw much sharper downgrades as can be seen. So normal service is resuming for now. As the graph and report highlights, on average earnings then beats by an average of around 4.9%, not far off Binky’s prediction for Q2.

Overall Binky’s team sees EPS for the S&P 500 at $55.6 (consensus $53.4), which implies a year-over-year decline of -3.4%, marking the third straight quarter of negative growth. Ex-Energy, they see growth turning positive at +1.4% yoy. In sequential qoq terms, after adjusting for strong Q2 seasonality, they see growth at a robust +2.0% (qoq sa), which would mark the second straight quarter of a sequential rebound following the 3.5% qoq sa rise in Q1 2023. This would recoup more than half the decline of -8.5% from Q2 2022 to Q4 2022.”

Reid also notes two other interesting factors in his report (which is highly recommended):

-During the average earnings seasons, the S&P 500 up 2% over the first four weeks of reporting.

-Earnings season is about 31% (16 weeks) of the calendar year, so its contribution of 8% is a substantial part of annual US equity returns.

Enjoy your weekend . . .


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