S&P 500 Now Projected to Report a Year-over-Year Decline in Earnings in Q4 2022

The (blended) earnings growth rate for the S&P 500 for the third quarter is 2.2%, which would mark the eighth consecutive quarter of (year-over-year) earnings growth reported by the index. Looking at the fourth quarter (Q4 2022), what are analyst expectations for year-over-year earnings? Do analysts believe earnings growth will continue in the fourth quarter of 2022 also?

The answer is no. Over the past week, the aggregate earnings growth rate for Q4 2022 changed from slight year-over-year earnings growth on October 28 (+0.2%) to a year-over-year earnings decline today (-1.0%).

However, expectations for earnings growth for Q4 2022 have been falling over the past few months. On June 30, the estimated earnings growth rate for Q4 2022 was 9.1%. By September 30, the estimated earnings growth rate had fallen to 3.9%. Today, the estimated earnings decline is -1.0%.

Since September 30, estimated earnings for the S&P 500 for Q4 2022 have declined by 4.7%. All eleven sectors have witnessed a decline in expected earnings for the fourth quarter from September 30 through today, led by the Materials        (-13.7%), Communication Services (-9.4%), and Consumer Discretionary (-8.3%) sectors.

Overall, eight of the eleven sectors are now projected to report a year-over-year decrease in earnings for the fourth quarter, led by the Materials (-18.0%), Communication Services (-15.4%), and Consumer Discretionary (-14.4%) sectors.

If the index reports a year-over-year decline in earnings in the fourth quarter, it will mark the first time the index has reported a year-over-year decline in earnings since Q3 2020 (-5.7%). However, analysts in aggregate not only expect earnings growth to return in Q1 2023 (2.3%), but also project that the index will report year-over-year earnings growth in all four quarters of 2023.

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