With 99% of fourth-quarter earnings in the books, the companies that make up the S&P 500 index are running head-on into an earnings recession, but any slump is likely to be short-lived.
An earnings recession is defined as shrinking profit for two quarters or more in a row. Per-share profit for S&P 500
SPX,
companies is down 4.6% in the fourth quarter, according to FactSet data, the first time the core index has reported a year-over-year earnings decrease since the third quarter of 2020, when pandemic restrictions silenced much of the economy, John Butters, senior earnings analyst at FactSet, said in a report on Friday.
Things will stay bumpy for the first half of this year, analysts’ forecasts indicate. For the first quarter and second quarter, Wall Street expects earnings declines of 5.9% and 3.8%. respectively, but forecasts call for a summer-season bounceback.
“Looking ahead, analysts expect earnings declines for the first half of 2023, but earnings growth for the second half of 2023,” Butters wrote.
For the third and fourth quarters, analysts see earnings gains of 2.9% and 9.6%, and analysts expect the S&P 500 overall to grow earnings for the year, finishing 2023 with 2.1% earnings growth.
But that rebound could be driven mainly by easier comparisons, after a difficult second half of 2022. Falling shipping and supply costs, thanks to easing pressure on the supply chain, could make for a second half of the year that’s less harsh on profits. But retail executives, at least, have signaled that they’re treading lightly heading into 2023, and expect consumers to remain hesitant about overspending.
This week in earnings
For the week ahead, only four S&P 500 companies report, according to FactSet, with no Dow Jones Industrial Average
DJIA,
on the list.
Among the highlights this week: Beauty-product and salon chain Ulta Beauty Inc.
ULTA,
reports, after riding self-care and post-quarantine life to continued — albeit slowing — same-store sales gains. Electronic signature platform DocuSign Inc.
DOCU,
and IT infrastructure developer Oracle Corp.
ORCL,
also report, as tech companies lay off employees and reckon with pandemic-era growth, and as post-quarantine life cuts into time spent at home and online.
The call to put on your calendar
Great outdoors still going great? As pandemic restrictions weighed on people’s sanity through 2020 and 2021, more people began going outside — camping, buying RVs, golf clubs and other outdoor equipment. But rising prices and recession concerns have left less time and money for getting back in touch with nature. Retailers have gotten more cautious about what they stock their shelves with.
RV maker Thor Industries
THO,
which reports Tuesday, has already said that rising prices were weighing on demand. However, athletic-gear retailer Dick’s Sporting Goods Inc.
DKS,
which also reports Tuesday, has been more optimistic. Work and outdoor-wear maker Duluth Holdings Inc.
DLTH,
ski-resort operator Vail Resorts Inc.
MTN,
and American Outdoor Brands Inc.
AOUT,
also report during the week.
The numbers to watch
Will food prices stop rising? Wednesday will be the day to glean bigger trends on food prices, with results due from Campbell Soup Co.
CPB,
Jack Daniel’s maker Brown-Forman Corp.
BF.B,
high-end winemaker Duckhorn Portfolio Inc.
NAPA,
and United Natural Foods Inc.
UNFI,
the primary distributor for high-end grocery chain Whole Foods.
Food prices have jumped over the past year. Executives have expressed confidence they can keep them that way, even as some big producers sell less actual food or beverages overall. Duckhorn executives have reported very little pushback, albeit from a more well-to-do customer. But analysts have questioned the sustainability of juicing sales through price increases alone.
