After a disappointing third quarter earnings season, analysts predict the fourth quarter will only get worse, with US corporate earnings likely to contract for the first time in two years, hit by successive rate hikes and slowing economic growth .
According to Refinitiv IBES data, as of Friday (18th), analysts forecast fourth-quarter profits for S&P 500 companies to fall 0.4% from the same period last year, a sharp downward revision from their October forecast 1 of 5.8 % increased.
S&P 500 companies posted a quarter-on-quarter earnings contraction in the third quarter of 2020 as companies grappled with the initial blow and supply chain disruption from the Covid-19 outbreak.
Analysts broadly agree that corporate profits will decline in 2023. Goldman Sachs only recently revised its 2023 EPS forecast for the S&P 500 to flat, citing lower profits.
With the S&P 500 down about 17 percent this year, investors worried about a recession triggered by Federal Reserve interest rate hikes have yet another reason to worry as analysts’ outlook for corporate earnings darkens.
Michael Mullaney, director of global market research at Boston Partners, said: “The results of the third quarter of US companies are not as expected, but our real focus is 2023. The Fed will have to drag the economy into recession if it is to meet its inflation target, which means (earned profit forecast 2023) it will drop sharply.”
Jonathan Golub, head of US equity strategy and quantitative research at Credit Suisse, said more than half of the downward revisions to earnings forecasts for S&P 500 constituents were due to technology and technology-related companies, reflecting the rise in products in the environment of progress. growth stocks were the hardest hit.
Fourth-quarter earnings for the S&P 500 technology sector are forecast to fall 7.8 percent, well below the 1 percent growth expected on Oct. 1. Earnings for communications services stocks are expected to plunge 20.9 percent, much worse than r the reduction of 9.2 per cent predicted on October 1.
Overall, fourth-quarter profit estimates are expected to decline from a year earlier for seven of the 11 major S&P sectors.
As of Friday, 475 S&P 500 constituents have issued their third quarter financial reports. Currently, Refinitv data shows that US companies are expected to grow by just 4.2% this quarter, which is below than the 4.5% estimated at the beginning of October.
Amazon (AMZN-US), Meta (META-US) and other large-scale growth stocks in the technology field not only reported poor third quarter financial results, but also disappointing fourth quarter financial forecasts. Department store target (TGT-US) and other major retail stocks that recently announced financial results also performed poorly. Wal-Mart (WMT-US) was one of the few companies that received approval from investors.
