April 2023 Monthly Recap
Market Snapshot
*As of 04/28/2023
By the Numbers
  • The corporate earnings season for the first quarter is underway and about one-fifth of S&P 500 companies have reported results. Coming into 2023, some investors and economists expected a recession within six to twelve months. Instead, the broad economic trends have remained positive with unemployment still near historic lows and inflation improving, propelling the S&P 500 to a positive return year-to-date.
  • One reason for long-term investors to focus on corporate profitability is that earnings growth is a fundamental component of stock returns. By buying a company’s stock, investors have the right to share in the company’s profits. So, the fact that the economy expands and companies earn more is a key reason that stock prices rise over the long run.
  • While a major recession may not be imminent, the economy is still expected to remain flat throughout 2023 before rebounding in 2024. Not surprisingly, the same is true for earnings expectations. Current consensus estimates suggest that S&P 500 earnings will be flat this year before rebounding by 12% next year. While these figures should be taken with a grain of salt, both the economic and earnings projections suggest that 2023 will be a reset year before a “v-shaped” recovery occurs. This will depend on factors such as inflation and Fed rate hikes.




Monthly Highlights

For April 2023, the stock market volatility settled down in April as Markets took a breather from the Federal Reserve’s monthly meeting. The S&P500 was up 1.56% for April. As of April 30th , the YTD % performance for each of the following: S&P500 +9.18% , DJIA +3.53% , NASDAQ +17.12%

  • At the moment, it’s positive that seven of the eleven S&P 500 sectors are expected to experience earnings growth over the next 12 months. This includes: Information Technology, Communication Services, and Consumer Discretionary, which are facing near-term struggles with the tightening rate environment. Information Technology experienced a 15% decline in earnings last quarter, concentrated in Semiconductors, but these figures suggest that this could turn around later this year.
  • In contrast, Consumer Discretionary experienced the largest year-over-year earnings growth this quarter (36% according to FactSet), and some of the largest positive surprises as well. However, keep in mind that this sector is largely dominated by Amazon, a reflection of the retail sector more broadly.
  • It’s also notable that the Financials sector is still expected to grow earnings as well. The recent banking turmoil has been primarily concentrated in regional and mid-sized banks. While larger banks have generally faced deposit outflows as customers seek higher yields, they have benefited more recently from a flight-to-safety as smaller banks have struggled.
  • The exceptions to the earnings picture are still the commodity-sensitive materials and energy sectors which benefited from rising prices last year, and the real estate sector which has been directly hit by rising rates.

Thus, it’s more important than usual for investors to maintain a longer-term perspective on valuations and their portfolios. Earnings can be volatile from quarter-to-quarter, especially in difficult economic environments.

Most sectors are expected to experience positive earnings growth

Sources: Clearnomics, Refinitiv, Standard & Poors
© 2023 Clearnomics, Inc

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