May 22, 2023 - Economy

Corporate America is doing fine as Q1 earnings show

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Despite widespread fear that first-quarter earnings would be ugly, they arrived much better than expected.

Why it matters: Weeks of updates from big-league American corporations have shown few worries about recession among the corporate class.

The latest: The first-quarter earnings season effectively finished last week with a flurry of results from retailers.

  • Walmart, Target, TJX and Home Depot all posted better-than-expected profits, though rising theft weighed on Target and Home Depot's top-line sales numbers underwhelmed.

The big picture: With Q1 numbers in hand for about 475 of the 500 companies in the benchmark S&P 500 index, we can tell you they were a lot better than analysts had predicted.

  • Going into earnings season, which began April 14, analysts were expecting a nearly 7% year-over-year drop in earnings per share for S&P 500 companies.
  • That would have been the worst profit tumble since 2020.
  • In fact, the numbers weren't near that bad. Earnings per share did sink, but only by 1.5%.

Context: The S&P 500 posted all-time high earnings per share in 2022 — so being just shy of that pace is nothing to sneeze at.

Be smart: Those more interested in the economy's overall health tend to look at top-line sales numbers for the S&P 500, rather than bottom-line profits.

  • Sales are actually growing at a peppy 5% year-over-year clip.

Yes, but: Despite the rosy takeaways, it should be noted that technically speaking, Q1 was the second consecutive quarter of year-over-year declines in S&P earnings.

  • Some refer to that as an "earnings recession," though that's stock market jargon, and not what economists would consider a thing.

The bottom line: The numbers were good, and investors and traders seem to have noticed.

  • All it took was a couple of decent headlines about progress on the debt ceiling to push the index to a new 2023 high on Thursday.
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