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Fourth-quarter results are shaping up to be the best of 2023, but there’s a catch

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Traders work on the floor of the New York Stock Exchange on February 1, 2024.

Brendan McDermid | Reuters

Here’s how surprising corporate profits have been this earnings season: The fourth quarter is now shaping up to be the best of 2023.

Despite lingering macroeconomic concerns that have dampened demand and weighed on consumer confidence, almost halfway through earnings season, earnings are clearly much better than expected.

Helping business bottom lines in this cycle: Easing input costs, placing greater emphasis on cost control and efficiency, and significantly lowering expectations.

A plethora of big wins beats among some very big ones S&P500 companies such as Amazon, Meta, Apple, Chevron, ExxonMobil, Merck And Bristol Myers Squibb significantly increased the fourth quarter growth rate at the end of the week.

LSEG, formerly Refinitiv, is now seeing nearly 8% growth in earnings this season. This is much better than the 4.7% expected just three weeks ago, just before the big banks published their results.

Stronger than expected results in three areas are particularly noteworthy:

  • Energy – 90% of companies beat earnings estimates, with profits nearly 14% above expectations.
  • Health care – 85% exceeded results, with profits almost 11% higher than expected.
  • Technology – 84% recorded profits more than 5% higher than expected.

Looking at the S&P 500 as a whole, the current earnings per share growth rate of 7.8% in the fourth quarter exceeds the 7.5% growth seen during the third quarter as a whole – and sits now at the top of the year.

Currently, 80% of S&P 500 results have beaten estimates, slightly above normal trends, and earnings have been more than 6% ahead of expectations – not quite the 7-8% rise. observed during the previous two quarters, but remains a very strong figure.

One very important caveat: These strong numbers come after earnings expectations fell early in the earnings season. As of Oct. 1, fourth-quarter S&P 500 earnings were expected to grow 11% year over year, according to LSEG.

Although the earnings picture has improved significantly since the start of 2024, the results are still far below what Wall Street was hoping for just four months ago.

As good as the fourth quarter results were, there is still no positive momentum going forward. Earnings estimates for the first quarter and full year 2024 have declined since Jan. 1 as many companies have issued conservative forecasts for this earnings season.

— Graphics by Gabriel Cortes of CNBC.

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