Today in the podcast, we take a deep dive into the stats and commentary for 2Q23 reporting season, based on data through July 28th when 51% of S&P 500 results were in. Three big things you need to know:
• First, the stats have improved since our last update and we’re now on track for a more solid reporting season.
• Second, in terms of the sectors that are shining, Energy and Materials continue to rank highly in terms of stock price reactions to EPS beats, but Tech is also standing out positively on some stats.
• Third, in terms of commentary, the level of conversation around prior headwinds like inflation continues to dissipate, while topics like AI, inventory destocking, and normalization have been in focus. In the ongoing discussion of outlooks and current conditions, commentary has been mixed though consumers are still described as resilient.
If you’d like to hear more, here’s another five minutes. While you’re waiting, a quick reminder that you can subscribe to this podcast on Apple and Spotify.
Now, the details.
Starting with takeaway #1: 2Q23 Reporting Season Is Starting To Feel More Solid
• Our early read on 2Q reporting season, when we looked at the earliest reporters, was that things seemed a bit soft. Now, when we analyzer the results with more than half of S&P 500 results in, our takeaway is a little different. There are still soft spots, but we seem to be on track for a better reporting season than we originally thought.
• Here’s what’s looking better:
o First, the percent of companies beating consensus on EPS is now tracking higher than 1Q23 for the S&P 500. This is better than what we saw a week ago when the pace of EPS beats was tracking lower than 1Q23.
o Within the Russell:
EPS growth in:
• To be sure, there are still some soft spots.
and Russell:
o We’re still seeing mostly downward revisions in the S&P 500 and Russell 2000.
o In percentage terms,:
o But on balance trends are in a better place.
Moving on to takeaway #2: Energy and Materials Continue To Shine in Some Regards, But Growth Sectors Also Look Good on Some Stats
EPS beats across the Russell:
• That being said, several Growth sectors are also starting to stand out on other stats. In particular, we find it striking that Tech has seen the highest percentage of companies beating consensus on EPS so far within the S&P 500, followed by the Consumer sectors, Communication Services, and Health Care.
• Tech, along with Consumer Discretionary and Utilities, is also seeing positive revisions for both EPS and revenues.
We think it will take a little more time for the sector winners of 2Q23 to be determined, but for now we think it’s a sign of market health that Growth sectors look good in some ways while Value sectors look good in others.
Wrapping up with Takeaway #3: Key Themes in S&P 500 Earnings Calls So Far
• Our team has continued to track transcript commentary both quantitatively and by reading through earnings call transcripts.
problems and opportunities of:
• Newer, major themes in focus have the concept of normalization particularly around the consumer, AI, and inventory destocking.
• For both AI and inventory destocking the level of conversation is hitting new highs.
• Normalization references are still high vs. history but are starting to fade.
• Other, newer themes percolating include China, but trends are not back to trade war levels.
• Conversation around student lending is picking up across both Large Caps and Small Caps.
• These are interesting topics, but we find ourselves wishing companies were talking more about how they are planning to manage around higher interest rates from a balance sheet and interest expense perspective.
• Qualitatively, based on what we’ve read, commentary around outlooks and descriptions of current conditions have been mixed.
• Optimism around pricing is fading, with several companies noting this is a natural consequence of moderating inflation and cost pressures.
• Discussions of non-US geographies have had a negative tilt.
• A number of companies have defended AI highlighting how it makes people more productive or augments existing products.
• Consumers continue to be described as strong and resilient and as prioritizing experiences, but also as increasingly cost conscious.
• Overall, the new narrative seems to be a bit of random hodge podge that is still taking shape.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
