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Are Company Analysts Pessimistic Enough Yet?
For much of the last year, company analysts were derided (sometimes mercilessly, and by their own colleagues) for an alleged "failure" to preemptively cut profit forecasts.
It's not a stretch to say bottom-up consensus was at least somewhat justified in holding off. Generally speaking, earnings were better than feared in 2022, and although the profit recession for corporate America is finally upon us, it's expected to be short-lived.
Of course, the latter point (about the assumed duration of t
I think the GS chart shows the mean and +/- 1SD range of EPS estimate revision paths in all periods – including periods of economic early cycle, mid cycle, late cycle, recession, right? If that is so, unsurprising that the estimate revision path in the current late cycle period would be tracking below the “all periods” mean.
Would be interesting to see how it is tracking versus other late cycle periods. If you guessume the average “late cycle” revision path is somewhere down toward that -1 SD line, then we might be right on that late cycle path.
Applying that -1 SD line to 2023 implies about -22% cut in consensus 2023 EPS estimate from Jun 2022 to Sep 2023. In Jun 2022 the 2023 cons EPS was $249, a -22% cut would be $194, or another -12% cut from today’s $219-220.
What’s one’s preferred P/E? 17X would get us $$3298. For $4101, need 21X. When has S&P500 traded at 21X? Twice – Tech Bubble and 2020.
I know, @derek, earnings don’t matter in the short run, other than maybe on stock selection. If they still matter in the medium run, then to be buying at $4110, we need to 1) see consensus 2023 EPS estimates going up, and/or 2) see rF, ERP, etc going down, and quite smartly too. SIVB gifted us #2, for a week anyway, but I’m not sure we really want more such gifts.
Yeah… “But in a deep recession scenario, all bets are off…”
And +/-1SD only captures 68% of the data, so recession periods should actually fall below the -1 SD line, because the US economy is in recession way less than 32% of the time. And that’s only in theory, assuming a normal distribution and sufficient data points for statistical rigor, neither of which are true for annual-based economic/market analysis.
I am not using a “deep” recession as my baseline. In even a mild-moderate recession scenario, S&P500 at $4110 doesn’t make much sense to me.
Of course, plenty of investors went to their professional graves in 1998-1999 and 2005-2006 with some variant of that lament on their tombstones.