S&P 500 earnings estimates for 2023 take ‘full U-turn’ as recession dangers loom, in keeping with BofA
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The S&P 500 dangers one other leg down after a “full U-turn” in 2023 earnings-per-share estimates for the U.S. stock-market index, in keeping with a BofA World Analysis be aware.
“Ahead estimates have been minimize a lot bigger than typical,” BofA fairness and quant strategists mentioned in a analysis be aware Monday. They mentioned that estimates for earnings per share, or EPS, for the S&P 500 in 2023 are down 3.6% for the reason that begin of October to $233 — 2.9 occasions the standard minimize.
Whereas the 2023 EPS consensus stays “properly above” BofA’s forecast of $200, estimates are 8% under the June peak of $252, in keeping with the be aware. Revisions to this point this yr are “now trending according to the historic common,” and if the two.9x tempo of cuts continues by way of year-end, the S&P 500 might see “no EPS progress subsequent yr” as 2023 consensus would fall to round $220, the strategists warned.
BOFA GLOBAL RESEARCH NOTE DATED NOV. 7, 2022
The above chart reveals how 2023 EPS revisions stack up towards the historic common, whereas additionally contemplating exclusions of the COVID-19 disaster and 2008 international monetary disaster.
“Precise EPS traditionally got here in 4% under the place consensus stood at first of the yr, which additionally factors to potential for detrimental progress,” the strategists mentioned.
In the meantime, estimates for S&P 500 EPS within the fourth quarter are down 4.3% for the reason that starting of October, or 2.5 occasions the standard estimate minimize “at this level in earnings season,” they wrote.
Analysts at Goldman Sachs Group mentioned in a analysis be aware Friday that they lowered their 2023 EPS progress forecast to 0%, from a beforehand anticipated improve of three%, after the S&P 500’s internet margins contracted within the third quarter for the primary time for the reason that pandemic on a year-over yr foundation. They wrote that “weak” third-quarter margins presage “a headwind” subsequent yr.
Goldman saved its value goal for the S&P 500 at year-end at 3,600 and in addition maintained its 2023 forecast of 4,000.
Fairness danger premium
The BofA strategists mentioned of their be aware Monday that they proceed to anticipate that “rising earnings danger will result in the next fairness danger premium.”
Their forecast for a 9% earnings drop in 2023 ought to translate into a rise within the fairness danger premium of 100 foundation factors, in keeping with the be aware. And that measurement improve interprets into an S&P 500 value of round 3,200 based mostly on immediately’s charges, they mentioned, pointing to a 1.7% actual yield for the 10-year Treasury be aware.
That valuation for the S&P 500 is under present buying and selling ranges, in addition to the index’s 2022 closing low of three,577.03 on Oct. 12, in keeping with Dow Jones Market Knowledge.
The S&P 500 has tumbled 20.9% this yr by way of Friday.
The U.S. inventory market was buying and selling largely increased early afternoon Monday, with the S&P 500
SPX,
rising 0.2%, in keeping with FactSet knowledge, eventually test. The Dow Jones Industrial Common
DJIA,
a blue-chip gauge of shares, gained 0.7% in early afternoon commerce, whereas the technology-heavy Nasdaq Composite
COMP,
was about flat.
All three main inventory benchmarks fell final week amid investor anxiousness over aggressive rate of interest hikes by the Federal Reserve because it battles excessive inflation.
The BofA strategists expressed concern over “looming recession danger” and falling company sentiment. “Mentions of weak demand have spiked to prior recession ranges,” they mentioned of their be aware Monday.
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