Earnings estimates have been slashed so much over the past three months that Wall Street strategists now expect most companies will easily beat analyst forecasts this season.
There’s however little reason to cheer, as Morgan Stanley strategists noted that a 7% cut to fourth-quarter profit estimates means US companies are poised to report almost no growth compared to the year before. That’s “creating a lowered bar and a higher probability” of yet another mid-single-digit earnings-per-share beat rate, Michael Wilson said.
Investors are closely monitoring the early stages of the earnings season to assess how companies have dealt with high interest rates and to gauge the health of US consumers. About 8% of S&P 500 companies have reported so far, with the majority of these firms surprising positively, according to data compiled by Bloomberg Intelligence.
HSBC Holdings Plc also sees another quarter of earnings beats after the bar was lowered. Strategist Nicole Inui said consensus expects all sectors excluding technology to report a deceleration in earnings growth versus the prior quarter and expectations eroded the most for commodities, health care, and financials.
Wilson — who was bearish last year even as stocks rallied — warned that despite strong beat rates, price reaction have been “more muted” over the past several quarters.
