After nearly two years of fears about a recession, growing optimism about the economy is beginning to seep into Wall Street’s forecasts for quarterly results for individual companies, with analysts growing increasingly optimistic about corporate earnings in the coming months.
While expectations for these quarterly results are normally tipped lower as earnings season arrives, over the past two months analysts have already pushed their earnings forecasts higher for the first time in two years, according to a FactSet report released Friday.
It is not difficult to find opponents of this optimism, the report said, but during July and August, Wall Street analysts increased their estimates of third-quarter earnings per share for the 500 companies in the S&P 500 SPX index.
“In fact, this quarter marks the first bottom-up increase in earnings per share estimates for the first two months of the quarter since the third quarter of 2021,” John Butters, chief earnings analyst at FactSet, said in the report.
He said that estimates of earnings per share for the third quarter rose 0.4% from June 30 to August 31. Fourth-quarter estimates also rose 0.6% over that period.
These corporate estimates tend to decline as their earnings dates approach, as optimistic expectations fade and financial realities emerge, but the Fed recently said it now expects a “significant slowdown” rather than a recession. Some analysts said the August jobs report is exactly what the Fed needs to end its rounds of rate hikes, which it has relied on to dampen consumer borrowing and purchasing power and lower inflation.
The FactSet report also found that executives talk less frequently about recession, based on analysis of earnings call transcripts. From 15 June
As of August 31, this analysis found that “the number of S&P 500 companies that indicate ‘stagnation’ in earnings calls has fallen for four consecutive quarters.”
However, JPMorgan analysts recently said that the collective corporate earnings forecast for 2024 was “extremely optimistic.” More pessimistic analysts have postponed their recession forecasts to next year.
This week in earnings
Only two S&P 500 companies are scheduled to report quarterly results next week, according to FactSet. Companies reporting results this week include electronic signature platform Docusign Inc.
Smith & Wesson Brands Company
and GitLab Inc.
Call to put it on your calendar
Questions for Krueger about “low inflation” and consolidation: Grocery store chain Kroger Co reports results on Friday. The results will, as they have been the case over the past year, highlight the ebbs and flows of inflation. Price increases have put pressure on consumers, while helping food producers and grocery stores to make profits. Kruger
In June, it said it had made “targeted” price cuts to help customers hit hardest by inflation – helping it compete against other shops while jeopardizing its bottom line. While the executives said inflation had begun to ease, they said they believed the spending backdrop “will continue to be challenging for our clients as they deal with higher interest rates and an uncertain economic outlook.” At the same time, Kroger signed a merger deal with Albertsons Co. Inc.
It still raises concerns about rising prices, competition and consumer access.
The number to watch
GameStop results: GameStop Corp. did not hold a conference call after its quarterly results in June. But the drama surrounding video game retail stores and the meme stock played out in other ways. In June, GameStop fired its CEO, and activist investor Ryan Cohen became CEO. In July, it announced the resignation of its chief financial officer, who left last month. Ahead of the company’s second-quarter results, due for release on Wednesday, Wedbush analyst Michael Pachter cited hardware growth for Nintendo and Sony, and a “compelling” software slate, and pointed to the company’s net cash of about $1.3 billion. But he said that GameStop “seems to have lost market share in recent quarters”.