S&P 500 Earnings Yield Highest Since Mid-March ’23: Can it Sustain?

 | Oct 23, 2023 04:08AM ET

Roughly 16% of the S&P 500’s market cap will report this coming week, with Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) (GOOG/GOOGL) on Tuesday, Meta (NASDAQ:META) on Wednesday and then Amazon (NASDAQ:AMZN) on Thursday, all releasing their September ’23 quarter end financial results after the close.

JP Morgan, Citigroup (NYSE:C), and Wells Fargo all had fairly solid Q3 ’23 earnings releases on Friday morning, October 13th, and all three stocks are trading below their opening highs from that morning. Wells Fargo has held up the best, but JP Morgan and Citi look sickly.

Worries over interest rates, a too-strong economy, and more fed funds rate increases, are keeping a lid on stock gains even after good earnings.

Can the mega-cap technology earnings reports change the trend?

h2 S&P 500 Data/h2
  • The forward four-quarter estimate (FFQE) fell to $238.95 this week from the week's prior $239.22;
  • The PE fell to 17.6x after this week’s 2.4% decline in the SP 500, versus the PE last week of 18x;
  • The S&P 500 earnings yield jumped to 5.66% as of the Friday, Oct. 20th close. This is the highest S&P 500 earnings yield since the week of March 17, ’23, or the middle of the Silicon Valley Bank collapse, when the EY also closed at 5.66%;
  • Per the Refinitiv data, just 86 S&P 500 companies have reported their Q3 ’23 financial results thus far, with the “upside surprise” for earnings being 6.9%, and the revenue “upside surprise” being +0.8%; The upside surprise or beat rates will mean more after this coming week’s results.
  • 158 companies are expected to report this coming week, per Refinitiv;
h2 Summary/h2

The negativity and sentiment have left the set-up for Q3 ’23 earnings, particularly the mega-cap tech companies, in a good position as even mild EPS and revenue beats might see a post-earnings pop in the stock prices, but the fact is that’s a slippery slope as well since what really matters is how the stocks (any stock) perform into year-end ’23.

Investors are now in the middle of what is typically the best seasonal period of historic returns for the S&P 500, i.e. the October, November, and December time frame.

There are other companies of interest reporting this coming week, including Coca-Cola (NYSE:KO), Boeing (NYSE:BA), IBM (NYSE:IBM), Merck (MRK), and Intel (NASDAQ:INTC).