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JPMorgan, Bank of America, Citigroup and Wells Fargo are part of Zacks Earnings Preview
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For Immediate Release
Chicago, IL – January 9, 2023 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) .
Q4 Earnings Season Preview: Will Estimates Hold Their Ground?
Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
Many in the market consider current earnings expectations to be too high and fear that the Q4 earnings season will cause estimates to be significantly lowered.
For 2022 Q4, aggregate S&P 500 earnings are currently expected to be down -7.3% on +4.0% higher revenues. The -7.3% earnings decline today is down from +1.7% on October 5th.
Excluding the Energy sector’s strong contribution from the S&P 500 index, Q4 earnings for the rest of the index are expected to be down -11.4% on +3.1% higher revenues. The -11.4% decline in index earnings decline today is down from -2.9% on October 5th.
Full year 2023 earnings estimates have been coming down after peaking in mid-April, with the aggregate total down -9.5% from the peak for the index as a whole and -11.9% excluding the Energy sector’s contribution.
We strongly dispute the notion that earnings estimates remain out of sync with the economic ground reality, particularly if the economic slowdown resulting from the Fed’s extraordinary tightening turns out to be moderate.
The big question that the 2022 Q4 earnings season, which gets underway in the coming days, is not so much about earnings growth for the quarter or what proportion of the S&P 500 members end up beating consensus estimates, but rather what these results and the associated management commentary and guidance for the coming periods tell us about the evolving earnings outlook.
The fear in the market is that we may be on the cusp of an earnings cliff, with the combined effects of softening demand resulting from the extraordinary Fed tightening and persistent cost pressures prompting management teams across many industries to provide downbeat guidance.
Keep in mind that it isn’t a new fear; we had something similar in place ahead of the start of the preceding reporting cycle (2022 Q3) as well, though the fear appears to be somewhat more widely held this time around.
Related to this fear is the view that current earnings estimates remain elevated and need to get cut significantly to get in-sync with the unfolding economic ground reality.
We don’t agree with this view, but see this picture unfolding only in the backdrop of the U.S. economy heading towards a ‘hard landing’. We see the risk of such a ‘hard landing’ as increasing if the Fed persists in its tightening policy beyond what the market has already priced in. But a hard-landing for the U.S. economy isn’t our base case, which makes us a lot more sanguine in our earnings outlook given how much estimates have come down already.
The four largest banks - JPMorgan, Bank of America, Citigroup and Wells Fargo – that are set to kick-off the Q4 reporting cycle for the Finance sector have been net beneficiaries of higher interest rates through improved margins. But most of them have suffered some estimate cuts, though significantly smaller than what companies in the Tech, Consumer Discretionary and Construction sectors have already endured.
For example, Citigroup’s current Zacks Consensus EPS of $1.21 for Q4 has declined -8.3% over the past two months while the same for Wells Fargo has been cut by a far more dramatic -50% over the past month. Even JPMorgan and Bank of America have endured modest cuts to estimates.
Estimates have come down a lot more notably in a broad swath of industries relative to what we noted for the four big banks. You can see this in the revisions chart below that show how earnings growth expectations for the 2022 Q4, as a whole and on an ex-Energy basis, have since the quarter got underway.
Estimates have come down significantly for full-year 2023 as well.
As noted earlier, the current aggregate earnings total for the index approximates to an index ‘EPS’ level of $221.88, down from $242.98 in mid-April, 2022. Please note that these ‘EPS’ values are imputed approximations and have been previously published.
Estimates for the Energy sector have started coming down lately as well. But for a long stretch last year, they were steadily going up. The 2023 negative revisions trend becomes even more pronounced on an ex-Energy basis.
The Overall Earnings Picture
The growth rate for Q4 is on a blended basis, where the actual reports that have come out are combined with estimates for the still-to-come companies.
Earnings next year are expected to be up only +2.2%. This magnitude of growth can hardly be called out-of-sync with a flat or even modestly down economic growth outlook. Don’t forget that headline GDP growth numbers are in real or inflation-adjusted terms while S&P 500 earnings discussed here are not.
As mentioned earlier, 2023 aggregate earnings estimates on an ex-Energy basis are already down by almost -12% since mid-April. Perhaps we see a bit more downward adjustments to estimates over the coming weeks, after the Q4 reporting cycle really gets underway. But we have nevertheless already covered some ground in taking estimates to a fair or appropriate level.
This is particularly so if whatever economic downturn lies ahead proves to be more of the garden variety rather than the last two such events. Recency bias forces us to use the last two economic downturns, which were also among the nastiest in recent history, as our reference points. But we need to be cautious against that natural tendency as the economy’s foundations at present remain unusually strong.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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JPMorgan, Bank of America, Citigroup and Wells Fargo are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – January 9, 2023 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (JPM - Free Report) , Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) .
Q4 Earnings Season Preview: Will Estimates Hold Their Ground?
Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
The big question that the 2022 Q4 earnings season, which gets underway in the coming days, is not so much about earnings growth for the quarter or what proportion of the S&P 500 members end up beating consensus estimates, but rather what these results and the associated management commentary and guidance for the coming periods tell us about the evolving earnings outlook.
The fear in the market is that we may be on the cusp of an earnings cliff, with the combined effects of softening demand resulting from the extraordinary Fed tightening and persistent cost pressures prompting management teams across many industries to provide downbeat guidance.
Keep in mind that it isn’t a new fear; we had something similar in place ahead of the start of the preceding reporting cycle (2022 Q3) as well, though the fear appears to be somewhat more widely held this time around.
Related to this fear is the view that current earnings estimates remain elevated and need to get cut significantly to get in-sync with the unfolding economic ground reality.
We don’t agree with this view, but see this picture unfolding only in the backdrop of the U.S. economy heading towards a ‘hard landing’. We see the risk of such a ‘hard landing’ as increasing if the Fed persists in its tightening policy beyond what the market has already priced in. But a hard-landing for the U.S. economy isn’t our base case, which makes us a lot more sanguine in our earnings outlook given how much estimates have come down already.
The four largest banks - JPMorgan, Bank of America, Citigroup and Wells Fargo – that are set to kick-off the Q4 reporting cycle for the Finance sector have been net beneficiaries of higher interest rates through improved margins. But most of them have suffered some estimate cuts, though significantly smaller than what companies in the Tech, Consumer Discretionary and Construction sectors have already endured.
For example, Citigroup’s current Zacks Consensus EPS of $1.21 for Q4 has declined -8.3% over the past two months while the same for Wells Fargo has been cut by a far more dramatic -50% over the past month. Even JPMorgan and Bank of America have endured modest cuts to estimates.
Estimates have come down a lot more notably in a broad swath of industries relative to what we noted for the four big banks. You can see this in the revisions chart below that show how earnings growth expectations for the 2022 Q4, as a whole and on an ex-Energy basis, have since the quarter got underway.
Estimates have come down significantly for full-year 2023 as well.
As noted earlier, the current aggregate earnings total for the index approximates to an index ‘EPS’ level of $221.88, down from $242.98 in mid-April, 2022. Please note that these ‘EPS’ values are imputed approximations and have been previously published.
Estimates for the Energy sector have started coming down lately as well. But for a long stretch last year, they were steadily going up. The 2023 negative revisions trend becomes even more pronounced on an ex-Energy basis.
The Overall Earnings Picture
The growth rate for Q4 is on a blended basis, where the actual reports that have come out are combined with estimates for the still-to-come companies.
Earnings next year are expected to be up only +2.2%. This magnitude of growth can hardly be called out-of-sync with a flat or even modestly down economic growth outlook. Don’t forget that headline GDP growth numbers are in real or inflation-adjusted terms while S&P 500 earnings discussed here are not.
As mentioned earlier, 2023 aggregate earnings estimates on an ex-Energy basis are already down by almost -12% since mid-April. Perhaps we see a bit more downward adjustments to estimates over the coming weeks, after the Q4 reporting cycle really gets underway. But we have nevertheless already covered some ground in taking estimates to a fair or appropriate level.
This is particularly so if whatever economic downturn lies ahead proves to be more of the garden variety rather than the last two such events. Recency bias forces us to use the last two economic downturns, which were also among the nastiest in recent history, as our reference points. But we need to be cautious against that natural tendency as the economy’s foundations at present remain unusually strong.
Why Haven’t You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.