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As we navigate through the first quarter of the fiscal year, an 'earnings recession' seems to be looming over the S&P 500. With 92% of these companies having disclosed their Q1 results, we observe a 2.5% dip in earnings compared to the previous year. This, following a 4.6% slump in the last quarter of 2022, likely indicates a second consecutive quarter of declining earnings among the market's juggernauts.
However, this 'earnings recession' brings with it several optimistic insights.
FactSet's recently published data provides a fresh perspective on the matter. Remarkably, 78% of the companies that have released their earnings thus far have outperformed expectations. This figure not only eclipses the ten-year average of 73% but also represents the highest proportion since Q3 2021.
Before the onset of the Q1 earnings season, analysts had anticipated a 6.8% plunge in earnings compared to the same period last year. But the actual figures present a less gloomy picture, underlining the resilience of the economic and corporate landscape.
In recent weeks, the term 'resilience' has emerged as a recurrent theme across economic and corporate circles. Despite challenging conditions, growth, labor markets, and profits have all shown remarkable tenacity, exceeding initial forecasts. This resilience could well be the key to weathering the current 'earnings recession' and potentially charting a course towards recovery in the upcoming quarters.
So, even as we acknowledge the occurrence of an earnings recession, let's not overlook the inherent resilience displayed by the corporate world. After all, these silver linings could very well be the precursors to an eventual rebound.
LYON BERN
Wealth & Asset Management in San Juan, Puerto Rico