The S&P 500 risks another leg down after a “complete U-turn” in 2023 earnings-per-share estimates for the U.S. stock-market index, according to a BofA Global Research note.
The above chart shows how 2023 EPS revisions stack up against the historical average, while also considering exclusions of the COVID-19 crisis and 2008 global financial crisis. Analysts at Goldman Sachs Group said in a research note Friday that they lowered their 2023 EPS growth forecast to 0%, from a previously expected increase of 3%, after the S&P 500’s net margins contracted in the third quarter for the first time since the pandemic on a year-over year basis. They wrote that “weak” third-quarter margins presage “a headwind” next year.
Their forecast for a 9% earnings drop in 2023 should translate into an increase in the equity risk premium of 100 basis points, according to the note. And that size increase translates into an S&P 500 price of around 3,200 based on today’s rates, they said, pointing to a 1.7% real yield for the 10-year Treasury note.