S&P 500 & Sectors: ROIC Keeps Falling In 2Q23

Trailing-twelve-month (TTM) return on invested capital (ROIC) for the S&P 500 fell quarter-over-quarter (QoQ) in 2Q23. The continuing decline suggests that the corporate sector of the economy is slowing. More importantly, tepid earnings forecasts for 2H23 suggest that ROIC will not move materially higher from current levels for the foreseeable future. I think ROIC for the S&P 500 peaked in 2Q22.

Despite the overall decline, seven out of eleven S&P 500 sectors saw a QoQ rise in ROIC in 2Q23. However, the rise in ROIC in these sectors was small relative to the sectors with declining ROIC. The decline in the S&P 500’s ROIC comes from a deterioration in net operating profit after tax (NOPAT) margins while invested capital turns remained flat.