Markets tread water amid growth and inflation uncertainty in April 2023.
Recession? What Recession?
Recession has been top of mind for investors since 2022, as many have expected a recession or hard landing as the likely outcome of the Federal Reserve’s aggressive tightening over the past 12 months. However, strong economic data continues to challenge that narrative, making it much more difficult to see a recession in the near-term. The U.S economy has continued to grow through 2023 according to the latest data from the U.S. Manufacturing Purchasing Manager’s Index that showed new orders returned to expansionary territory and production increased at the fastest pace since May 2022.
Earnings beat rather downbeat estimates
Earning expectations for Q1 2023 were set at a fairly low level following numerous downward revisions based on assumptions of a slowing economy hampered by higher rates, persistent inflation, and tapped out consumers. However, out of the 53% of S&P 500 companies that reported results by the end of April, 78% of them reported positive earnings surprise and 68% reported positive revenue surprise. The actual decline in earnings was 3.3%, vs estimated earnings decline at 6.7%.
Large dispersion on earnings growth between sectors
Of the 11 sectors in the S&P500, only 4 of them were growing earnings over the quarter, most notably consumer discretionary, which had earnings growth at 32.6%, (skewed by standouts such as Amazon which beat estimates by 70%). industrials had earnings growth at 21.2% and Energy had earnings growth at 14.6%. At the other end of the spectrum, materials, utilities, and health care reported negative earnings growth at -25.7%, -20.9% and -15.8% respectively.