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Unpacking the drivers behind the deteriorating US EPS growth trajectory

November 21, 2022

The second half of 2023 has seen the 2023 EPS growth rate forecast start to decline

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As can be seen in Chart 1, the second half of 2023 has seen the 2023 EPS growth rate forecast start to decline. This has clearly been connected to the rapidity of the commensurate decline in forward looking GDP growth forecasts.

Chart 1: 2023 EPS growth forecasts have followed GDP forecasts lower

Source: Wilshire and FactSet. Data as of November 15, 2022

Technology and Health Sectors have been the key drivers behind the downgrading

Chart 2 shows the sector weighted contribution to the aggregate 2023 market EPS growth rate. In May the forecast was for 12% EPS growth, and this has now declined to 7.9%. The main contributors to this 4.1% decline were the negative contributions from the tech and health sectors.

Chart 2: Comparing the US vs World ex US PE ratio moves over the last 20 years

Source: Wilshire and FactSet. Data as of November 15, 2022

There is a lot of seasonality built into the 2023 EPS projections

Chart 3 shows the progression of quarterly US EPS forecasts out to the end of 2023, with the blue bars showing the Q/Q growth rates and the grey line showing the quarterly forecast EPS (USD). As the chart shows, there is high levels of seasonality forecast over the next 12 months or so.

After flat or negative EPS growth expected for the next three quarters, a lot appears to be hinging on a recovery in EPS in Q3 and Q4 of next year.


Chart 3: A lot is riding on the delivery of a positive EPS inflection in Q3 2023

Source: Wilshire and FactSet. Data as of November 15, 2022

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US EPS cycle starting to wobble

September 26, 2022

After a period of relative stability, we are starting to see a deterioration in the EPS or profit cycle through the prism of estimate trail analysis

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US growth rate stability and downgrading in Asia Pacific and EM, however…

Chart 1 shows the status of regional consensus EPS growth forecasts for this year and next and the revisions (deltas) to the forecasts over the last month. The notable negative revisions have been in Asia Pacific and Emerging Markets. In terms of 2023 growth rate projections, the US is still predicted to deliver the highest growth rate among developed markets.

Chart 1: Regional consensus EPS growth forecasts

…Growth rates might be giving a false sense of security

Growth rate analysis does not provide insight into the status of the cycle as it simply measures the difference in EPS forecasts over two distinct time periods. If both periods see EPS decline by 10%, the growth rate remains the same. That is why EPS cycle analysis must be viewed via EPS trails that map the changes to calendar year forecasts over time. Chart 2 shows the EPS trails for the US and that after a period of stability both 2022 and 2023 EPS estimates have started to decline. The cycle seems to be deteriorating.

Chart 2: US consensus EPS trails - starting to wobble

Most sectors have seen negative EPS revisions over the last month

Chart 3 shows revisions to 2022 and 2023 EPS estimates versus the August market high for both the US and World ex US at a sector level. Energy remains the only sector to see positive revisions to 2022 and 2023 estimates for the US and World ex US.

Chart 3: A broad deterioration in sector EPS revisions

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