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S&P 500 Now Projected to Report Year-Over-Year Earnings Declines in Q1 2023 and Q2 2023

Written by John Butters | Jan 18, 2023

The estimated earnings decline for the S&P 500 for the fourth quarter is -3.9%, which would mark the first year-over-year earnings decline reported by the index since Q3 2020 (-5.7%). Looking ahead to the first quarter and beyond, what are analyst expectations for year-over-year earnings? Do analysts believe earnings declines will continue in 2023?

The answer is yes. Over the past few weeks, earnings expectations for the first quarter and the second quarter of 2023 switched from year-over-year growth to year-over-year declines. However, expectations for earnings for both Q1 2023 and Q2 2023 have been falling over the past few months. On June 30, the estimated earnings growth rate for Q1 2023 was 9.6%, and the estimated earnings growth rate for Q2 2023 was 10.3%. By September 30, the estimated earnings growth rate for Q1 2023 was 6.3%, and the estimated earnings growth rate for Q2 2023 was 5.1%. Today, the estimated earnings decline for Q1 2023 is -0.6%, and the estimated earnings decline for Q2 2023 is -0.7%.

At the sector level, 10 of the 11 sectors have witnessed a decline in estimated earnings for the first half of 2023 since September 30, led by the Consumer Discretionary, Communication Services, and Materials sectors. Overall, six sectors are now projected to report a year-over-year decrease in earnings for the first quarter, and three sectors are predicted to report a year-over-year decrease in earnings for the second quarter. The Materials and Health Care sectors are the only two sectors predicted to report a year-over-year decrease in earnings for both quarters.

As of today, the index is expected to report three straight quarters (Q4 2022 through Q2 2023) of year-over-year earnings declines. If this happens, it will mark the fourth time it has occurred since 2015. The last time the index reported at least three straight quarters of year-over-year earnings declines was Q1 2020 through Q3 2020.

However, it should be noted that analysts believe earnings growth will return in Q3 2023 (5.2%) and Q4 2023 (10.7%). As a result, they expect the index to report earnings growth of 4.6% for all of 2023. Obviously, all of this earnings growth is projected for the 2nd half of 2023.

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