S&P 500 Reporting Lowest Net Profit Margin in More Than 3 Years for Q4

Given continuing concerns in the market about inflation, what is the S&P 500 reporting for a net profit margin for Q4?

The (blended) net profit margin for the S&P 500 for Q4 2023 is 10.7%, which is below the previous quarter’s net profit margin (12.2%), below the year-ago net profit margin (11.2%), and below the 5-year average (11.5%).

If 10.7% is the actual net profit margin for the quarter, it will mark the lowest net profit margin reported by the index since Q2 2020 (8.5%). In addition, it will mark the largest quarter-over-quarter decline in the net profit margin since Q1 2020 compared to Q4 2019 (9.2% vs. 10.8%). At the sector level, all eleven sectors are reporting (or are expected to report) a quarter-over-quarter decrease in their net profit margins in Q4 2023 compared to Q3 2023, led by the Financials (12.6% vs. 17.7%), Utilities (12.4% vs. 15.9%), and Consumer Discretionary (6.9% vs. 9.5%) sectors.

Four sectors are reporting (or are expected to report) a year-over-year increase in their net profit margins in Q4 2023 compared to Q4 2022, led by the Utilities (12.4% vs. 9.1%) and Communication Services (11.7% vs. 8.8%) sectors. On the other hand, seven sectors are reporting a year-over-year decrease in their net profit margins in Q4 2023 compared to Q4 2022, led by the Financials (12.6% vs. 16.6%) and Energy (9.6% vs. 13.0%) sectors.

Five sectors are reporting (or are expected to report) net profit margins in Q4 2023 that are above their 5-year averages, led by the Information Technology (25.2% vs. 23.3%) sector. On the other hand, six sectors are reporting (or are expected to report) net profit margins in Q4 2023 that are below their 5-year averages, led by the Financials (12.6% vs. 16.6%) and Health Care (7.2% vs. 10.1%) sectors.

It is interesting to note that analysts believe net profit margins for the S&P 500 will improve in the first half of 2024. As of today, the estimated net profit margins for Q1 2024 and Q2 2024 are 11.7% and 12.1%, respectively.

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