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Unpacking the drivers behind the deteriorating US EPS growth trajectory

November 21, 2022
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The second half of 2023 has seen the 2023 EPS growth rate forecast start to decline

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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Writer

Philip Lawlor

Managing Director,  Market Research (Benchmarks)

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