It’s the fourth quarter already? It sure is, as of last Thursday—and so investors are preparing for a flurry of new earnings reports. Analysts think there’s a good chance they’ll like what they see.
Third-quarter results start trickling in this week, with Delta, Pepsi, and Levi Strauss due to report. Earnings season will begin in earnest next week, when numbers from big banks like JPMorgan Chase and Bank of America mark what’s more or less considered the start of the next round. Analysts have grown bullish about third-quarter results over the course of the quarter, raising earnings per share estimates 1.3% for companies in the S&P 500, according to a late-September analysis from FactSet. Analysts tend to lower their estimates as the quarter progresses, according to FactSet.
Upward revisions suggest earnings could “continue to have momentum,” Wolfe Research said. “Although another quarter of solid revisions creates a higher bar for companies reporting results over the coming weeks, we continue to have faith that the AI [buildout] remains strong, and this earnings season will likely act as a positive catalyst for stocks amidst a choppy macro backdrop,” its analysts wrote last week. Analysts expect S&P 500 constituents to report 12.1% year-over-year revenue growth in the third quarter, along with 29.1% earnings growth, per FactSet. If those estimates pan out, S&P 500 companies would deliver earnings growth above 25% for three quarters in a row, FactSet said.
What analysts are saying about U.S. stocks
Morgan Stanley: “The de-rating is well advanced beneath the surface, while earnings remain strong, making revisions breadth the key differentiator this reporting season. Within that setup, Industrials present an increasingly attractive risk/reward as EPS revisions improve and backlogs broaden.”
JPMorgan: “U.S. activity remains robust, with nominal growth rates at present much higher than the nominal bond yields. The question is over the still relatively elevated investor positioning, together with full valuations, K-shaped consumer, and the potential for more Fed hikes being priced in. We believe SPX will make fresh highs into year-end on continued earnings uptrend and the stabilization in tech trade.”
RBC Capital Markets: “We typically update our rolling 12-month S&P 500 price target once a month and last revisited it in early/mid September. Our target implies a gain of roughly 6% from the September 8th close, when we last froze our models. We continue to think of our forecast as higher but not heroic and reflective of the idea that stocks can grind higher in the year ahead even though the path is unlikely to be a linear one.”
Evercore ISI: “New decade+ highs in long-end yields, Fed hikes, and peaking EPS growth rates have all induced Sept/Oct chop and near-term profit taking. Sector divergences have reached extremes. Energy (+40% YTD) outperforming, along with Tech (+30% YTD), to such a degree has been rare. Even rarer is financial underperformance (-2% YTD) simultaneously. Only 8 times since 1990 have these divergences happened to such a degree, with double-digit up or down SPX outcomes each time 1 year forward. Volatility and wide-ranging outcomes are the base case in an unfinished bull market as a volatile fall starts. Long term, the bull market remains intact given the absence of recession, a strong jobs market, and credit conditions that remain contained. “