• The LERI reveals company uncertainty rising to its highest degree because the pandemic

• Fewer buyback and dividend enhance bulletins spotlight different methods corporations are holding again

• Banks on deck this week: expectations are for elevated credit score losses and decrease IB charges

• Peak weeks for Q3 season run from October 23 – November 10 

The third quarter 2023 earnings season kicks off this Friday, October 13 and a Friday the thirteenth kickoff date may very well be a really apropos foreshadowing for the season to return. 

At the moment, earnings progress for the third quarter is about to return in at -0.3%, which might be the fourth consecutive drop in YoY earnings-per-share (EPS) progress. Nevertheless, that is nonetheless a marked enchancment from prior quarters and can doubtless tip into optimistic territory as soon as corporations begin to report. With that mentioned, the huge headwinds seen all year long haven’t disappeared. Excessive rates of interest, a waning shopper, and now with the addition of the Israel-Hamas conflict, it’s clear US corporations nonetheless have so much to take care of. 

On the sector entrance, Communication Providers and Shopper Discretionary are set to guide the cost on each the highest and backside line, pushed by progress from Meta Platforms (NASDAQ:) and Amazon (NASDAQ:), respectively. Lagging sectors proceed to be Supplies and Power.

LERI Replace: CEOs the Most Unsure They’ve Been For the reason that COVID-19 Pandemic

One early trace that CEOs won’t be feeling so assured could be seen within the Late Earnings Report Index (LERI) studying for the upcoming earnings season. 

The Late Earnings Report Index tracks outlier earnings date modifications amongst publicly traded corporations with market capitalizations of $250M and better. The LERI has a baseline studying of 100, something above that signifies corporations are feeling unsure about their present and short-term prospects. A LERI studying beneath 100 suggests corporations really feel they’ve a fairly good crystal ball for the close to time period.

Whereas we received’t formally calculate the Q3 2023 earnings season (reporting in This fall 2023) LERI till the large banks report Friday, October 13, the present pre-peak season LERI studying stands at 121, the very best studying because the COVID-19 pandemic.

As of October 10, there have been 51 late outliers and 38 early outliers. Usually, the variety of late outliers tendencies upwards as earnings season continues, indicating that the LERI is poised to get even worse from right here as companies are more and more extra fearful heading into the brand new 12 months. 

Supply: Wall Avenue Horizon

The current Measure of CEO Confidence revealed by the Convention Board confirms this ongoing pessimism from company America. The August 3 report confirmed that whereas the measure improved to 48 in Q3 2023, from 42 in Q2 2023, it nonetheless fell under 50, suggesting CEOs remained “cautious about what’s forward within the economic system.” Most CEOs nonetheless anticipate an financial downturn, with 84% making ready for a US recession within the coming 12 – 18 months. 

A Pullback in Buybacks (and Dividends)

It’s not simply estimates and earnings dates that look lower than stellar this quarter, however dividends and share repurchases as nicely. These are the 2 major automobiles that corporations use to return worth to shareholders, and each are seeing significant decreases. 

In one other signal that US corporations are nonetheless performing with warning, the diploma to which they return extra earnings to traders is cooling. The third quarter of 2023 had the fewest variety of buyback bulletins in a 12 months, 132 vs. 127 in Q3 2022, and the second lowest quantity since COVID-19-related lockdowns occurred in Q2 2020 (130). 

Supply: Wall Avenue Horizon

In an analogous vein, dividend will increase have additionally dampened. In Q3 2023, the variety of corporations rising dividends (617) vs. reducing dividends (516) have been almost on par with one another, we are likely to see a far larger depend for will increase when in comparison with decreases. 

To date for This fall, of the 23 dividend change bulletins that we’ve tracked, 9 are decreases, and 14 are will increase. 

Supply: Wall Avenue Horizon

Up This Week: Large Banks

In its common vogue, Q3 earnings season will start with the large banks, with JPMorgan Chase (NYSE:), Citigroup (NYSE:) and Wells Fargo & Firm (NYSE:) reporting on Friday. Headwinds persist in a couple of fundamental areas, beginning with credit score losses.

In accordance with a current notice from Goldman Sachs, bank card losses are rising on the quickest tempo in nearly 30 years excluding the Nice Recession. Each JPM and WFC have reported will increase of their 30+ day delinquency charge for card providers as in comparison with final 12 months. As such, anticipate to see will increase in mortgage loss provisions once more in Q3. 

One other focus would be the continued drought in deal exercise on the funding banks. Regardless of a short uptick in M&A offers and a few thrilling IPOs introduced within the tech area not too long ago, in September Financial institution of America estimated that Q3 funding banking charges can be down 30 – 35% for the sector vs. the 12 months earlier. 

The underside line is, regardless of a better-than-expected jobs report final week, banks are more likely to reveal that headwinds nonetheless stay.  

Supply: Wall Avenue Horizon

Q3 Earnings Wave

This season’s peak weeks will fall between October 23 – November 10, with every week anticipated to see almost 2,000 stories or extra. At the moment, November 9 is predicted to be probably the most lively day with 1,173 corporations anticipated to report. To this point solely 44% of corporations have confirmed their earnings date (out of our universe of 9,500+ international names), so that is topic to alter. The remaining dates are estimated based mostly on historic reporting information.

Supply: Wall Avenue Horizon