Stable earnings expectations are offsetting rate uncertainty for stocks

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Earnings estimates have seen the steepest cuts in 7 years, but that doesn't spell doom for the stock market, DataTrek says

Stock investors have been knocked around this year as they confront a higher-for-longer scenario for interest rates, but equities have managed to advance as investors see corporate America's largest companies capable of posting relatively solid future earnings, according to DataTrek.

DataTrek said Wall Street analysts in the first two months of this year have chopped down their S&P 500 earnings estimates for 2023 by 3.4%, outstripping the long-run average of 1%. But the cuts weren't deep as in 2015 or 2016, two other years where markets were concerned about a looming recession. Analysts in 2015 cut earnings expectations by 5.1%, and by 4.4% in 2016.

"Yes, interest/discount rates are higher but without a material deterioration in earnings expectations that dynamic plays second fiddle to a stable outlook for earnings," he said. "The good news is that markets likely discount Wall Street analysts' optimistic forecasts as much as we do," said Colas, adding that all the market may need to see to hold current levels is the S&P 500 holding quarterly earnings power of $50-52/share through the rest of 2023.

 

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