Analysts are feeling less confident about how companies are performing in the current quarter.
Estimates for S&P 500 (^GSPC) companies earnings per share declined 5% from Sept. 30 to Nov. 30, nearly double the average decline over the last 10 years, according to data from FactSet. Information technology (^XLK) is the only one of the 11 sectors that hasn't seen a decline in earnings expectations over the past two months.
FactSet noted the Q4 earnings per share estimate cuts come amid persistent concerns about recession or a possible economic slowdown.
But zooming out, the earnings picture doesn't look nearly as murky. In the same period that earnings projections for the fourth quarter dropped 5%, the estimates for all of 2024 slipped just 0.5%. And Wall Street sees earnings per share improving each quarter sequentially throughout 2024.
"Markets look forward, so they see current quarter negative revisions as being less important than Wall Street’s incremental confidence regarding 2024 earnings," Datatrek co-founders Nicholas Colas and Jessica Rabe wrote in a research note on Sunday in reaction to FactSet's data. "That is a helpful backdrop for December, typically one of the better months of the year for US equity stock returns."
2024 earnings projections have been a key point of contention among Wall Street's strategists in the past few weeks, as many use them as a key indicator for where the S&P 500 will finish next year. Some see a recession limiting earnings growth.
JPMorgan projects just 2% to 3% growth next year in earnings, resulting in the S&P 500 finishing 2024 at 4,200, down from its current level of around 4,500.
On the other side, firms like BMO see a robust year for earnings as they believe recession fears have been much ado about nothing. BMO sees earnings per share reaching $250 next year, with the S&P 500 closing at 5,100, up about 11% from where it ended November.
Morgan Stanley's Mike Wilson sits in the middle with an earnings per share target of $229. And with a projection for 7% growth in earnings, the noted Wall Street bear still sees some opportunities — just maybe not in what's been leading the market recently.
After small caps ripped through November and the Russell 2000 (^RUT) rose more than 2% on Friday alone, Wilson wrote in a research note on Monday it still might not be the time to buy the beaten-down index.
"We would recommend waiting for a better entry point later this month to play a seasonal rally in small caps rather than chasing Friday's outsized move, particularly given the weakness we are seeing in small cap earnings revisions," Wilson wrote.
One chart in the note shows the diversion in earning revisions between small-cap companies and large-cap tech.
Josh Schafer is a reporter for Yahoo Finance.
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