S&P 500 Earnings Off 1% in Q3, Analysts Estimate

Third time’s a charm? Not so much for the just-completed quarter that ran from July through September: Analysts’ consensus is that the S&P 500’s earnings per share will be down 1% year over year, marking the third straight period of negative numbers, according to S&P Capital IQ.

The good news is that analysts estimate the index will not be in the red for the following three quarters. This year’s fourth quarter is estimated to show an 8.2% gain, followed by 0.0% in 2024’s first quarter and 11.9% in its second. The projection for all of 2023 is for a flat performance (meaning zero), with an 11.9% advance for 2024 as a whole.

The rosier forecast for next year assumes that there will be no recession and that interest rates, which ballooned in 2023, will no longer rise and may even fall to some degree.

The minus 1% projection for third-quarter 2023 EPS is an improvement on the second period’s 5.4% loss and the first quarter’s 1.2% drop. As of Monday, 116 S&P 500 companies have issued EPS guidance for the third quarter. Of these, 74 gave negative EPS guidance and 42 positive, per FactSet Research. The number of companies issuing negative EPS guidance for the third quarter is greater than the five-year average of 58 and the 10-year average of 63. Company results for the quarter are starting to trickle in and will grow in coming weeks.

In Q3, five of the S&P 500’s 11 sectors were in negative territory: energy, financials, health care, materials and real estate. In addition to the large-cap S&P 500, the Standard & Poor’s indexes for mid caps and small caps are projected to be underwater for the quarter.

S&P 500 energy stocks for the third quarter are anticipated to plummet 38%. “Relative to the third quarter of 2022, spot prices for West Texas Intermediate (WTI) crude oil are estimated to be down 12%, and we forecast spot prices for Henry Hub natural gas to be down a whopping 68%,” wrote Sam Stovall, chief investment strategist at CFRA Research, in a report.

Oil and gas prices in 2022’s third quarter were higher due to Russia’s invasion of Ukraine, which led to many Western nations barring Russian energy imports, thus jacking up oil and gas prices. As a result, 2022’s third period was good for energy profits.

Stovall pointed to rising rates and a sliding stock market for the financial sector’s projected 0.3% slip in the third quarter. Health care’s 10.8% fall stems from a drop in sales of COVID-19-related products and patent expirations, while higher costs from inflationary pressures “could put pressure on margins,” in Stovall’s view. For materials, anticipated to decline 17.7%, Stovall placed the blame on falling commodity prices—thanks to a strong U.S. dollar—plus weaker consumer and industrial demand owing to lingering recession fears. The same economic uncertainty and higher rates harmed real estate (off 28.7%), he indicated.

That is why the expected brightening picture up ahead will be doubly welcome after a triple play of bad quarters.