Jan 16, 2024 - Economy

Get ready for another strong earnings season

Data: FactSet, U.S. Bureau of Labor Statistics; Chart: Axios Visuals
Data: FactSet, U.S. Bureau of Labor Statistics; Chart: Axios Visuals

The backdrop for Q4 U.S. corporate profits looks healthy.

State of play: Big banking and financial firms started the festivities last Friday, with more (including Goldman Sachs and Morgan Stanley) Tuesday morning, and hundreds of companies to follow in the coming weeks.

  • Wall Street analysts are forecasting S&P 500 earnings per share will grow 1.2% in Q4 compared to Q4 2022.

Yes, but: Estimates are by definition, wrong. And typically, they're lower than what ends up getting reported.

  • Case in point, just before Q3 earnings season got underway last year, analysts expected EPS growth of 0.5%. It turned out to be 6.1%.

The big picture: While any given company could produce ugly Q4 numbers, from a macro perspective, the backdrop for corporate profits looks quite good.

  • Unemployment is low.
  • Consumer spending was strong.

Between the lines: What's more, prices for consumers are still rising faster than the more subdued rate of inflation measured by the Producer Price Index — which tracks wholesale prices that business owners face.

The bottom line: It should be pretty fat.

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