Stocks are Marked Down as Earnings Season Ends. Good News: It is not a Recession.

The 80% of S&P 500SP –0.28% businesses have already reported profits, putting the index's earnings per share on track for a 2.2% decline in the fourth quarter. This would be the first quarterly decline since the third quarter of 2020. It's no surprise that profit margins have declined recently, and several corporations have issued profit warnings.

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Unusual rapid decline in earnings projections. Since the conclusion of the fourth quarter on December 31, consensus EPS projections have declined 1.7%, according to Jonathan Golub, the chief U.S. equities strategist at Credit Suisse.

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Since 1998, analysts' average projections have tended to increase by 2.8% following the completion of each quarter, with declines occurring in just 16 of 98 quarters, nine of which were greater than 1.7%. Except for the first quarter of 2020, when Covid-19 caused global unrest, these occurred during the 2001 recession and the 2008-2009 financial crisis.

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Golub says that disregarding recessions, this is the "worst earnings season" in the past 24 years. This is not a fluke. Consensus EPS projections already include a 4.8% reduction for the first quarter of 2023 and a 2.9% decline for the whole year. "Unfortunately, these projections continue to decline," he says.

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The U.S. economy increases in the fourth quarter, but profits don't continue to rise indefinitely, and many investors are confident that the country will achieve a gentle landing. Compared to the 34% decrease that followed 2008's fourth quarter or even 2001's 2.7% reduction, the fourth quarter's 1.7% dip appears to be relatively insignificant.

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Consensus Busters Earnings surprises, either positive or negative, may vary by sector. Here is the fourth quarter's breakdown.

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Yet, the stock market fluctuated during the previous week, casting doubt on January's advance and increasing the likelihood that the year's second half would conclude with a whimper rather than a bang.

Next Week

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Monday 2/20

Both the equity and fixed-income markets are closed in accordance with Presidents Day.

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Tuesday 2/21

Home Depot, Ingersoll Rand, Keysight Technologies, Medtronic, Molson Coors Beverage, Palo Alto Networks, Public Service Enterprise Group, Public Storage, Realty Income, SBA Communications, and Walmart will announce earnings.

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February marks the publication of S&P Global's Manufacturing and Services Purchasing Managers' indexes. The consensus forecast calls for a Manufacturing PMI score of 47.2 and a Services PMI level of 46.7, both essentially in line with the January figures. Since November, both indices have been below 50, suggesting a recession in their respective industries.

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The National Association of Realtors announces January sales of existing homes. A seasonally adjusted annual pace of 4,1 million house sales is anticipated, 80 thousand more than in December. Existing-home sales have fallen for eleven months, as the housing industry is among the most susceptible to Federal Reserve interest rate rises.

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Wednesday 2/22

Nvidia releases fourth-quarter fiscal-2023 earnings. This year, market capitalization shares of the largest semiconductor business have soared 46%, partly owing to the mania for artificial intelligence companies sparked by the debut of ChatGPT, an AI-powered chatbot late last year.

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Coterra Energy, DaVita, eBay, Lucid Group, Pioneer Natural Resources, and TJX Cos will release a quarterly report.

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The Federal Open Market Committee released the minutes from its monetary-policy meeting in early February. The disinflation narrative that Fed Chairman Jerome Powell presented at his post-meeting news conference has been refuted by economic data released following the meeting, including a spectacular employment report and consumer price index and producer pricing index that exceeded expectations.

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Thursday 2/23

American Electric Power AEP +1.89%, American Tower, Alibaba Group Holding BABA -3.10%, Autodesk ADSK -0.97%, Block, Booking Holdings, Intuit, Keurig Dr. Pepper, Moderna, Newmont, and Warner Bros. Discovery WBD +0.78% conducts earnings conference calls.

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The Bureau of Economic Analysis releases its second gross domestic product growth estimate for the fourth quarter. Four-tenths of the percentage point less than the BEA's first estimate, which was revealed in late January, economists predicted that the economy grew at a seasonally adjusted annual rate of 2.5%.

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Friday 2/24

The BEA provides January's personal income and expenditures. Consensus estimates indicate that income and spending increased by 1% month over month. This compares to a 0.2% increase and a 0.2% decline in December. The preferred inflation measure of the Federal Reserve, the core personal consumption expenditures price index, is anticipated to rise 4.3% annually, a decrease of one-tenth of the percentage point from the previous forecast.

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