S&P 500 first quarter earnings season has begun. First off are the large financials including BlackRock, Citigroup, and JP Morgan, and some 87% of the index will release 1Q results by 5 May.
Bank stocks are always closely watched for the insight they provide into the US economy, especially now that softer US job opening data and weaker employment numbers point to a slowdown in the US economy. This time around bank stocks are more important than usual, given the recent banking crisis and the fears that it may flare up again, especially concerning US small and medium-sized regional banks.
With JP Morgan kicking off the Q1 earnings season, if it materially beats estimates this could provide a lift to risk appetite generally, and potentially result in an extension of the rally in stocks seen over the past 2 quarters.
Source: Goldman Sachs
Consensus expectations are for S&P 500 company earnings per share (EPS) to fall by 7% year on year, the largest decline since the third quarter of 2020 and a significant deterioration from the -1% year-on-year growth posted in 4Q 2022. Importantly, if analyst projections are realised, this quarter will represent the trough in S&P 500 earnings growth.
Megacap growth and tech stocks have powered recent gains on Wall Street this year, with big tech shares gaining safe-haven status for investors fearing a potential recession and volatility in the banking sector.
By sector, Materials (-32%) and Health Care (-20%) are expected to report the largest earnings declines. Communication Services (-18%) and Info Tech (-16%) stocks are also expected to announce EPS declines despite some recent surging share prices. On the positive side, Energy and Industrials are expected to post year-on-year EPS growth of +11%, followed by Consumer Discretionary at +9%.
This earnings season will mark the first time that S&P 500 companies will report within new GICS (Global Industry Classification Standard) sector classifications that were implemented in the US on 17 March, which might result in some minor surprises.
As readers are well aware, the US market is the global bellwether with performance over the next month likely to set the trend across world share markets.
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