Investors should expect more negative earnings surprises in 2H23 than usual. The numerous earnings beats in 1H23 were artificially set up when companies “kitchen-sinked” 2022. By “kitchen-sinked”, I mean S&P Global’s Operating Earnings and GAAP Earnings steadily declined while Core Earnings rose throughout that year. My Core Earnings research is based on the latest audited financial data, which is the calendar 2Q23 10-Q in most cases.
In the first half of 2023, I see the opposite trend. Operating Earnings and GAAP Earnings are rising, while Core Earnings are declining and showing signs of further weakness. In fact, TTM Operating Earnings for the S&P 500 in 2Q23 are now higher than Core Earnings for the first time since 1Q22. See Figure 2 for details.
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