Q1 Earnings Are Up, But Nothing to Cheer About

On the surface, first-quarter earnings seem to be coming in fine. But there’s an undercurrent that profits are looking a bit shaky going forward. A market in correction, as is the case now, is more eager to penalize stocks whose earnings per share are lower than Wall Street expected.

The number of already-reported S&P 500 companies that beat analysts’ estimates is above the five-year average, according to FactSet. Trouble is, the magnitude of those surprises is below that average. In other words, more beats but weaker ones.

Plus, the rate of growth is slowing. John Butters, the firm’s senior earnings analyst, projects that EPS will come in at 9.1%, higher than the year-prior period. That number is made up of reports that are in and forecasts for those to come. The ones already in are ahead by about 6%. At this point, 79% of index members have reported.

Nonetheless, investors have gotten used to double-digit earnings increases. A 9.1% showing, Butters writes in a report, “will mark the lowest earnings growth rate reported by the index since Q4 2020 (3.8%).” To reach the 9.1% figure, Butters takes the results of the 79% of the index that has already reported and forecasts the rest.

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What’s also disturbing is that, without energy, EPS thus far would be 0.5% negative, according to Bank of America Securities’ Savita Subramanian, an equity and quant strategist.

And then there’s the punishment. On average this earnings season, says Credit Suisse, companies that missed both sales and EPS estimates have suffered a 2.9% stock drop that day. This decline is larger than the gains that stocks that meet or exceed estimates have notched, Credit Suisse data indicate.

Thus far, nine of the 11 S&P 500 sectors have reported year-over-year earnings growth, with energy, materials, and industrials the leaders. The two sectors to announce declines are consumer discretionary and financials.

Prominent misses this time are Facebook parent Meta, Amazon, Under Armour, Netflix, and Robinhood Markets.

One solace, sort of: This earnings season shows that the market has some more to fall but should bottom out with the S&P 500 at 3,850. That’s the extrapolation from Brad McMillan, CIO for Commonwealth Financial Network. The index closed Monday at 4,040. In other words, it has around 5% more to drop, by McMillan’s figuring.

McMillan takes the price/earnings ratio of the last two times that interest rates were at these levels—that was 18 times trailing EPS—and applies it to the $213 in overall S&P 500 EPS that he expects. That’s how he reaches 3,850.

Right now, the index’s trailing P/E is 20, down from 29 at the year’s start. Given the market’s bearish trend, it surely will keep sliding. The forward P/E is at 18.

Why Not to Worry About Slowing Earnings Growth

What If Earnings Season Turns Out to Be a Bust?

Tags: beats, Brad McMillan, Earnings, EPS, FactSet, John Butters, misses, P/E, S&P 500, Savita Subramanian

Ray Joseph, CIO of the $29 billion Los Angeles Fire and Police Pensions, has stepped down less than a year after taking the job due to personal reasons.

Ray Joseph

According to a statement from the pension fund, Joseph’s departure is effective immediately, and LAFPP General Manager Raymond Ciranna will take over the responsibilities of CIO until a replacement is hired. Ciranna says that plans to fill the position are currently being developed. The pension fund didn’t provide any further details on why Joseph less after such a brief tenure. [Source]

Joseph was tapped as CIO of the LAFPP in June of last year, replacing Tom Lopez, who had been with the pension fund for more than 40 years before retiring. Prior to joining the LAFPP, Joseph was a vice president at Wilshire Associates, where he provided investment strategies for pension plans, endowments, foundations, and family offices.

Before Wilshire, Joseph was responsible for cross-asset strategy, asset allocation, and investor solutions for pensions, endowments, and foundations at Barclays. He was also the principal deputy special trustee for the Office of the Special Trustee within the U.S. Department of the Interior and oversaw assets for more than 500 Native American tribes. Joseph was also deputy CIO and acting CIO for the State of New Jersey’s Division of Investment, where he managed pension investments, deferred compensation plans, and the state’s cash management program.

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In December, Joseph was nominated as a finalist for a CIO Industry Innovation Award for public defined benefit plans with $21 billion to $99 billion in assets.

The LAFPP also announced that Rigo Arellano was elected as the fire department employee member-elect to serve on the pension fund’s board. His term will run from July 1 through June 30, 2027. [Source]