2023-07-10 11:44:08
Analysts predict the strongest drop in corporate profits since 2020
U.S. companies in the S&P 500 index will report lower earnings for the third quarter in a row, analysts surveyed by FactSet predict. This fall will be the sharpest decline since the start of the COVID-19 pandemic.
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Analysts expect S&P 500 companies to report a 7.2% drop in second-quarter profits from the same period a year earlier. reported The Wall Street Journal, citing FactSet survey data. This fall will be the sharpest drop since the second quarter of 2020, when the onset of the COVID-19 pandemic sent corporate profits down 32% in three months, the publication calculated.
Quarterly reporting season begins this week in the US. The decline in corporate quarterly profits might continue for the third quarter in a row, writes the WSJ. For more than a year now, companies have been facing persistent inflation, tight consumer demand and an increase in the US Federal Reserve’s interest rate. At the same time, US stock indices showed a strong recovery in 2023, with the S&P 500 index rising by 15% and the Nasdaq Composite by 31%, which was the best start to the year in the last four decades.
Some market participants believe that the results will not greatly disappoint the market, given the weak forecasts of Wall Street experts on corporate earnings in the second quarter. This, in turn, might potentially give investors more confidence and encourage stock purchases. Sam Stovall, chief investment strategist at CFRA Research, says the only thing investors will really be surprised at is if companies’ earnings turn out to be better than expected.
The eternal “bear” Wall Street estimated the probability of a market collapse at 70%
Some of the largest US banks will report this week, including JPMorgan Chase, Wells Fargo and Citigroup, as well as Delta Air Lines and beverage maker PepsiCo.
The key question for investors is how long companies will be able to show profit, trying to pass on increased costs to customers, the newspaper writes. Analysts forecast S&P 500 companies’ revenue fell 0.3% in the second quarter from a year earlier, marking the first decline in sales since the third quarter of 2020.
Among S&P 500 sectors, analysts expect durables to report the highest earnings growth at 27%, according to FactSet, with Amazon likely to perform better. Experts predict that the energy segment will experience the biggest decline in profits compared to last year, when company revenues rose sharply once morest the backdrop of a sharp rise in oil prices.
The results of large-cap technology companies following a significant jump in their stock prices at the beginning of the year can strongly influence the market. Big weight of companies like Apple and Microsoft. in the S&P 500 index makes their results especially important for the overall direction of the stock market.
Corporate earnings estimates for the remainder of 2023 remain relatively positive. Analysts expect S&P 500 earnings to rise regarding 0.3% in the third quarter and regarding 8% in the fourth quarter, according to FactSet.
Bank of America predicts S&P 500 to rise to 5,000 points by 2024
Some Wall Street banks have revised their forecasts for the growth of the S&P 500 index. In Goldman Sachs raised year-end S&P 500 target from 4,000 to 4,500 points, citing expectations that the US economy is likely to avoid recession in the next 12 months. CFRA Research predicts the index will rise to 4575 points by the end of the year. According to Bank of America analysts, the S&P 500 index might reach the level of 5,000 points by next year.
Author: Marina Mazina.
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