The week in review
- Retail sales: +0.60% m/m
- Retail sales ex-auto: +0.40% m/m
The week ahead
- 4Q23 real GDP (first estimate)
- Markit PMIs (prelim.)
Thought of the Week
With 10% of market cap having reported, fourth quarter S&P 500 operating earnings per share (EPS) is tracking +4.1% y/y growth. However, similar to 3Q23, we continue to see divergence between the operating earnings estimates and pro-forma estimates, which are currently tracking a y/y decline of -2.2%. As a brief reminder, while operating earnings are unadjusted and a better indicator of “economic profit,” the market prices off pro-forma earnings, which are therefore more useful in explaining recent market moves.
So far, results have been heavily impacted by the financial sector. Overall, the sector is tracking a pro-forma earnings contraction of 25%, primarily due to results in the banking industry. Among the banks, earnings have been hampered by a slew of FDIC charges related to the banking crisis we saw earlier in 2023. Separately, net interest income continues to decline, as loan growth stalls and deposits reprice higher. Provisions for loan losses have ticked up yet again due to weakening credit quality and increasing net charge-offs. These headwinds have been partially offset by a slight recovery in investment banking activity and strong trading revenues. Excluding financials, results have come in above expectations, with an earnings surprise of +5% versus an earnings surprise of -21% including financials. In the consumer sectors, for instance, results from the early reporters have been marked by the successful clearing of bloated inventories, cost management, resilient pricing power and margin expansion. Elsewhere, the tech sectors seem set for another strong quarter, as continued head count and cost management along with the strong demand for digital and AI-related capabilities support software earnings growth.
Looking ahead, the next two weeks will be key for results, as the index’s largest names will report earnings and provide guidance on expectations for profits in 2024.
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Originally Posted January 22, 2024 – Weekly Market Recap
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