{"id":9421,"date":"2023-03-20T15:53:17","date_gmt":"2023-03-20T15:53:17","guid":{"rendered":"https:\/\/zacksim.com\/financial-professionals-insights\/?p=9421"},"modified":"2023-03-20T15:53:18","modified_gmt":"2023-03-20T15:53:18","slug":"market-insights-from-the-q4-2022-earnings-season","status":"publish","type":"post","link":"https:\/\/zacksim.com\/financial-professionals-insights\/market-insights-from-the-q4-2022-earnings-season\/","title":{"rendered":"Market Insights from the Q4 2022 Earnings Season"},"content":{"rendered":"\n

The fourth quarter 2022 earnings season has officially wrapped up, and the results were expectedly underwhelming. Total earnings were down -4.6% year-over-year, on +5.3% higher revenues, with about 70% of companies beating EPS and revenue estimates. The quick read here is that sales remained strong and pricing power likely helped boost revenues, but rising costs \u2013 particularly labor costs \u2013 crimped profits.1<\/sup><\/p>\n\n\n\n

As has been the case since April 2022, earnings estimates have been coming down for future quarters. For full-year 2023, aggregate earnings estimates have been cut by -12.4% for the full index, and for Q1 2023, S&P 500 earnings are expected to decline -9.0% on +2.0% higher revenues, as seen in the chart below:<\/p>\n\n\n\n

\"\"
Zacks Investment Research2<\/sup><\/strong><\/em><\/figcaption><\/figure>\n\n\n\n

Investors may see this posted earnings decline, and expected earnings decline for Q1 2023, and think: doesn\u2019t this make a case for being out of stocks now? If company earnings are expected to be weak and\/or to fall, shouldn\u2019t we wait until the earnings picture improves before committing to equities?<\/p>\n\n\n\n

In my view, and using history as a guide, the answer is no.<\/p>\n\n\n\n

If we take a look back at the cyclical and structural bear markets of this century \u2013 which is to say the 2000 \u2013 2002 tech bubble and the 2007 \u2013 2009 Global Financial Crisis, we find a similar pattern to what we saw in 2022.<\/p>\n\n\n\n

When the tech bubble bear market started in March 2000, earnings were still positive, much as they were in 2022 when last year\u2019s bear market commenced in January. Earnings did not officially turn negative until Q4 2000, several months after the bear market had begun. The takeaway here is one I make often \u2013 the stock market almost always prices in earnings weakness before <\/em>it happens, not while it\u2019s happening.<\/p>\n\n\n\n

In 2007, the bear market associated with the Global Financial Crisis took hold in October. But it was not until March of the following year that EPS declines became official, another example of the stock market acting as a discounting mechanism for future economic and earnings conditions.<\/p>\n\n\n\n

In keeping with this thinking, history also tells us that the stock market will start to rebound before <\/em>the economy and corporate earnings are firmly in growth trends. In fact, bull markets typically start during a recession, and around 6-9 months before a trough in earnings. It\u2019s also been true that stocks tend to perform best when growth is weak but improving, rather than when growth is strong but slowing.<\/p>\n\n\n\n

Thinking about the current environment, we now know that 2022\u2019s bear market started in January, which again was several months before earnings declines became official. The three worst performing sectors during the bear market last year were Communication Services, Technology, and Consumer Discretionary, which were also the sectors posting the biggest earnings declines in Q4 2022. The stock market can be pretty efficient.<\/p>\n\n\n\n

If we\u2019re thinking about future stock market behavior, I would make the argument that we should focus on where corporate earnings will be in Q3 or Q4, not where they\u2019ll be next quarter. Taking a look at Zacks Investment Research\u2019s projections below, we\u2019re seeing earnings rebound back into positive territory by Q3 2023 \u2013 fitting nicely with the 6\u20139-month timeline explained above.<\/p>\n\n\n\n

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Zacks Investment Research3<\/sup><\/strong><\/em><\/figcaption><\/figure>\n\n\n\n

Bottom Line for Investors<\/strong><\/p>\n\n\n\n

Many of the falling earnings estimates for coming quarters have factored in a recession. But recency bias often causes analysts and even CEOs to anticipate that a future recession will look like the last recession, which is rarely the case. If a recession in 2023 is mild, or even avoided altogether, earnings would be likely to exceed expectations \u2013 which markets like to see.<\/p>\n\n\n\n

From an investment perspective, if we expect the U.S. economy to struggle in the first half of 2023 and to improve later in the year or even into 2024, it would make now the time to own stocks, in my view. And since corporate earnings estimates have already come down considerably, I\u2019d be anticipating inflection points and opportunities for investors over the next few months.<\/p>\n","protected":false},"excerpt":{"rendered":"

The Q4 2022 season is now over, and the results were underwhelming. But the results, and estimates for the upcoming year, can help investors set expectations. <\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[181,1],"tags":[],"class_list":["post-9421","post","type-post","status-publish","format-standard","hentry","category-financial-professionals","category-mitch-on-the-markets"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9421","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/comments?post=9421"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9421\/revisions"}],"predecessor-version":[{"id":9425,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9421\/revisions\/9425"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media?parent=9421"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/categories?post=9421"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/tags?post=9421"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}