BofA Still Positive About 4Q 2023, as Other EPS Estimates Deflate

The earnings recession may be over, but the analysts’ consensus now is for a blah final quarter of 2023, if not a slight decrease. Although FactSet Research had been predicting a 1.6% overall gain for the S&P 500 in last year’s final period, the latest reading puts it at a slightly negative level of minus 0.1%.

Bank of America, however, will have none of that pessimism. That is based on BofA’s own analyst survey, taken in late December, according to a research note from the Savita Subramanian, head of the bank’s U.S. equity and quantitative strategy. She termed the new subdued projections from elsewhere as “too conservative.” The BofA poll “painted a Goldilocks scenario for stocks, and recent commentary from our analysts ahead of 4Q results suggest that’s still intact,” her report stated.

Last year’s third quarter broke a three-period record of negative EPS readings, a sequence that is a rarity in a non-recession period. So 3Q profits, compared with year-before numbers, were up 4.9%. Many assumed that positive momentum would continue into the December-ending quarter.

Much of BofA’s fourth quarter optimism rests on projected EPS surges by six of the Magnificent Seven mega-cap tech stocks, with Tesla Inc. the outlier; the automaker’s profits are anticipated to fall 38%. Tesla’s earnings disappointed investors in the third quarter, owing to the same problem expected to blight 4Q—price reductions for its electric vehicles amid higher interest rates that hinder sales.

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In its report, FactSet tied its downbeat view to “more negative EPS guidance than average for Q4,” greater than the five-year and 10-year averages both in the number and percentage of companies’ negative outlooks.

Five of the 11 S&P 500 sectors are projected to post year-over-year earnings drops, most notably energy, materials and health care, per FactSet.

The S&P 500 earnings reporting season for the past quarter is only now beginning, with very few companies having issued their results. In Q4 reports to date, bank earnings disappointed, but that was mainly due to one-time charges at JPMorgan Chase, Citigroup, Wells Fargo and Bank of America. The charges ranged from restructuring costs (Citi) to losses on real estate loans (Wells).

Other disappointments thus far in the current season include below-estimate revenues at medical services company Agilent Technologies Inc., maker of laboratory instruments. There also are subdued expectation for the likes of chipmaker ON Semiconductor Corp., hindered by weakening automobile demand. It reports in early February.

On the plus side, analysts, whether polled by FactSet or BofA, are sanguine about 2024, projecting 12.8% for the calendar year.