Wall Street Finally Sees Corporate Earnings Ready to Climb

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The market is feeling its oats.

Following three straight quarters of collective year-over-year earnings declines among companies in the S&P 500, Wall Street analysts are finally projecting a reversal of fortune once reporting season kicks off next month, according to a recent report in The Wall Street Journal. The sunny outlook couldn’t have come at a better time.

Profit Prophecies

But wait a minute — hasn’t the stock market — especially the S&P 500 — been running white-hot all year? Yes, definitely. The S&P 500 is up 16% this year, even after some recent cooling off. But those gains have moved quicker than analysts’ anticipated profit growth. The S&P 500 is trading at nearly 19-times expected earnings over the next year, up from just below 17-times last year.

But this isn’t necessarily a throwback to November 2021, when Wall Street finally balked at the massive price-to-earnings disparities driven by post-pandemic interest in firms focused on growth over profit. This time around, profit forecasts are now near or at all-time highs in just about every sector:

  • Analysts expect companies in the S&P 500 to post a 0.5% increase in profit in the current quarter, which would bring about a 1.2% increase for the year so far, according to FactSet data.
  • The lofty projects come after analysts increased estimates during the first two months of the current quarter, senior FactSet analyst John Butters told WSJ.

Reassessing the Recessing: Bounding optimism has largely put to rest fears of a recession. Only 62 companies mentioned the r-word on earnings calls between mid-June and the end of August, well down from the 238 Cassandras last summer, according to FactSet. “It’s like the most anticipated recession in modern history is not going to come,” Harris Financial Group managing partner Jamie Cox told WSJ. Still, the last time analysts increased estimates during the first two months of a current quarter was in Q3 of 2021, just before the massive November 2021 selloff. Let’s hope that recessions aren’t like love — and don’t come when you least expect it.