The most important driver of stock prices is on the rise: Morning Brief

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This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:

  • The chart of the day

  • What we’re watching

  • What we’re reading

  • Economic data releases and earnings

During August, the stock market faced its first blip of 2023 when the index fell 1.7%.

And market history shows September has been the worst month of the year since World War II.

But amid this market instability, the most important factor for the stock market’s long-term performance was actually getting better. And that is corporate earnings.

“At the end of the earnings season for the second quarter, have analysts lowered EPS estimates more than normal for S&P 500 companies for the third quarter?” asked FactSet’s John Butters in a note published Friday.

“The answer is no.”

Butters notes that during July and August, earnings estimates were raised for the third quarter, fourth quarter, and remainder of 2023, as well as 2024 full-year forecasts.

Notable not only because earnings are the most important long-term driver of stock prices, but because analyst estimates are typically revised lower during the first two months of a given quarter.

FactSet’s data shows that over the last decade, earnings estimates for S&P 500 companies typically drop by 2.7% during the first two months of a quarter. Over the last 15 years, the drop has been even larger at 3.4%.

The last time earnings were revised higher over the first two months of a quarter was the third quarter of 2021.

Earnings estimates for 2023 have been steadily revised higher during July and August. (Source: FactSet)

Earnings estimates for 2023 have been steadily revised higher during July and August. (Source: FactSet)

Second quarter earnings season is just about wrapped up and will mark the continuation of the ongoing earnings recession.

Earnings for S&P 500 companies dropped 4% from the prior year in Q2, data from FactSet shows, an improvement over the 7% decline seen in the first quarter of the year.

But the firm notes that while corporate profits have continued to decline from 2022 levels, analysts are growing more bullish on the outlook for the balance of this year and into 2024.

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