AP Photo/Richard Drew
- So far, 68% of S&P 500 companies have beat Wall Street analysts' fourth-quarter estimates, lower than the five-year average of 77%.
- Earnings also saw a 4.8% year-over-year decline, which marks the first decline since 2020, DataTrek Research highlighted.
- However, stocks haven't weakened to the same degree, with the S&P 500 mostly flat over the last three months.
An earnings recession for US companies has started, according to a Monday note from DataTrek Research, yet US equities have stayed mostly flat over recent months.
So far, 68% of S&P 500 companies have beat Wall Street analysts' fourth-quarter estimates, lower than the five-year average of 77%.
Profits are also down 4.8% year-over-year, the largest drop since late 2020, and Wall Street analysts see declines of 4% to 7% in the next two quarters, respectively.
In fact, Wall Street has trimmed estimates for all of 2023, as shown in the chart below.
DataTrek, FactSet
Yet from November 17 until Friday's close, the S&P 500 has ticked 0.6% higher. In other words, earnings have tumbled but remain disconnected from a relatively resilient stock market.
DataTrek listed a couple reasons stocks haven't reflected downbeat earnings.
First, markets have already discounted the bad fourth-quarter results, as well as analysts' first- and second-quarter estimates.
The second reason stocks haven't adjusted lower with earnings comes down to a reassessment of valuations.
As DataTrek cofounder Nicholas Colas wrote:
"[M]arkets believe $50/share (Q1 2023's estimate, rounded down slightly) is the S&P's trough earnings power. This translates into $200/share annually, and a 20x multiple on that number gets you to S&P 4000, a level we have visited time and again since mid-May 2022."