Stocks can 'hold up quite well' after an earnings recession, BMO says

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Fears of an earnings recession are overblown and investors shouldn't panic sell as stocks will hold up fine, BMO chief strategist says

BMO said the first earnings recession since 2020 appears likely, with consensus forecasts projecting mid-single-digit year-over-year profit declines for the first and second quarters of 2023. That would come aftercompanies logged a year-over-year quarterly loss exceeding 4% in the fourth quarter of last year.

BMO said its preferred method of measuring profit cycles – a trailing four-quarter basis – the S&P 500 is estimated to post low single-digit losses starting in the second quarter of this year. Those losses are"nowhere near those seen during the pandemic," said Belski. Belski said also to keep in mind that earnings comparisons in 2023 year over year are facing the hurdle of 2002's record levels of quarterly earnings per share."When measuring current bottom-up EPS numbers versus two years prior, the earnings growth rates for each quarter in 2023 are firmly positive." While Corporate America's profits may be smaller, the arrival of an earnings recession does not necessarily mean that a recession for the US economy is imminent, said BMO.

Within those periods, six was the highest number of quarters with consecutive year-over-year earnings declines. also found that US stocks have"held up quite well" in the months after an earnings recession and for the duration of the profit drop.

 

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