An earnings recession for US companies has started, according to a Monday note from DataTrek Research, yet US equities have stayed mostly flat over recent months.
So far, 68% of S&P 500 companies have beat Wall Street analysts' fourth-quarter estimates, lower than the five-year average of 77%. Profits are also down 4.8% year-over-year, the largest drop since late 2020, and Wall Street analysts see declines of 4% to 7% in the next two quarters, respectively.Recent actual quarterly S&P earnings per share and analysts’ estimated EPS , along with DataTrek notations outlining how much Q4 2022 – Q4 2023 earnings projections have declined since November 17th 2022.Yet from November 17 until Friday's close, the S&P 500 has ticked 0.6% higher.
The second reason stocks haven't adjusted lower with earnings comes down to a reassessment of valuations."[M]arkets believe $50/share is the S&P's trough earnings power. This translates into $200/share annually, and a 20x multiple on that number gets you to S&P 4000, a level we have visited time and again since mid-May 2022."