The S&P 500 closed the second week of 2023 with another positive performance. But UBS economists believe that the upcoming fourth quarter corporate reporting season will provide a reality check.
Fourth-quarter earnings growth will stall
“The headwinds of earnings –a hawkish Fed, a normalization of demand for popular goods during the pandemic, a stronger dollar and higher costs due to more expensive labor— have become strong enough that we expect no fourth-quarter earnings-per-share growth in the S&P 500 compared to the same period last year. Overall, we expect a sharp slowdown in revenue growth to the 4-5% range, and a continued normalization of profit margins from last year’s above-average levels.”
“Our view on full-year 2023 earnings remains unchanged. Our 2023 EPS estimate is $215, down 4% from 2022. We believe bottom-up consensus EPS estimates for all year seem at least 6% too high.”
“Forward S&P 500 P/E stands at 17.3x compared to the 15-66x range that prevailed prior to the second and third quarter reports. It is also high on historical terms. This suggests that even if the results are somewhat better than investors expect, the upside potential of the market may be somewhat limited.”
“Even if the upward EPS estimate of $230 turns out to be correct, we have a hard time justifying paying more than 18x PER. This suggests upside potential to 4,140 for the S&P 500, just 4% above current levels.. At the same time, Downside risks remain elevated, with values potentially falling 15-20% if the economy enters a full-blown recession.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
