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US EPS cycle starting to wobble

September 26, 2022
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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

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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Writer

Philip Lawlor

Managing Director,  Market Research (Benchmarks)

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