What is Driving the Expected Rebound in S&P 500 Earnings Growth in Q4 2023?

While analysts expect earnings for the S&P 500 to decline in Q2 2023, they also project earnings growth to return in the second half of 2023. For Q3 2023, the estimated earnings growth rate is 0.8%. For Q4 2023, the estimated earnings growth rate is 8.2%. If 8.2% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q1 2022 (9.4%). What is driving the expected improvement in earnings growth in Q4 2023?

At the sector level, nine of the eleven sectors are predicted to report year-over-year earnings growth in Q4 2023. Five of these nine sectors are expected to report double-digit earnings growth for the quarter: Communication Services (36.3%), Utilities (26.2%), Consumer Discretionary (21.3%), Information Technology (12.4%), and Financials (11.2%). The Communication Services and Information Technology sectors are expected to be the largest contributors to earnings growth for the fourth quarter of all eleven sectors. If these two sectors were excluded, the estimated earnings growth rate for the S&P 500 for Q4 2023 would fall to 3.9% from 8.2%.

At the company level, Amazon.com, Meta Platforms, Alphabet, and NVIDIA are expected to be the largest contributors to earnings growth for the S&P 500 for Q4 2023. Amazon.com, Meta Platforms, and NVIDIA are expected to report year-over-year EPS growth of more than 100% in Q4 2023. In addition, analysts have increased EPS estimates for all four companies for the fourth quarter since December 31. If these four companies were excluded, the estimated earnings growth rate for the S&P 500 for Q4 2023 would fall to 4.2% from 8.2%.

It is interesting to note that the expected top contributors to earnings growth for the S&P 500 for Q4 2023 have all seen significant price increases since the start of the year. The Communication Services and Information Technology sectors have seen the largest price increases of all eleven sectors since the start of the year, with gains of over 30%. Meta Platforms and NVIDIA have seen their stock prices increase by more than 100% since December 31, while Amazon.com and Alphabet have seen their stock prices increase by more than 35% during this period.

The FactSet Earnings Insight report will not be published on June 16. The next edition of the report will be published on June 23.

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