4Q23 EPS: 4 reasons EPS results are better than appears on surface, including potential China bottom. Array ( [cookie] => e12139-bc29c9-5e2b79-903833-f09399 [current_usage] => 1 [max_usage] => 2 [current_usage_crypto] => 0 [max_usage_crypto] => 2 [lock] => [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 0 [reason] => Usage under limits [method] => ) 1 and can accesss 1

VIDEO: We discuss 4 factors that suggest 4Q23 EPS season stronger than many realize.

Please click below to view our Macro Minute (duration: 3:56).

This week will be the midpoint of 4Q23 EPS season (105 cos reporting). There have been several high profile EPS beats leading to massive stock moves such as META 0.66%  and PLTR 22.77% . In our view, overall, this is proving to be a very strong EPS season. And we see 4 reasons it is probably stronger than appears on the surface:

• At this midpoint, S&P 500 4Q23 EPS is tracking towards $54.00, up +0.70% from the start of the year. It is good that it is up, but this rise in estimates is somewhat modest compared to the last 15 years. On average, EPS estimates tends to rise +3% vs start of results season. It was higher during the past few years but the past 3 years are the exception.
• But the +0.70% figure is understated. Financials have seen EPS estimates fall since the start of the quarter by -14%. This is a result of the FDIC insurance fund assessing a $23 billion fee to cover the bailouts of regional banks. 
• Excluding this assessment, EPS is tracking +3.6% above start of quarter. This is above the 3.2% long-term average. And we are only at the midpoint, so this means the EPS estimates could ultimately be +6% above start of quarter (ex-Financials).
• Second, the market reaction to earnings has been improving and the best since 4Q22. Based on data compiled by our data science team, led by tireless Ken:
  – companies beating are seeing 1D stock gains of +1.1%
  – this is above +0.8% 3Q23 and best since 4Q22
  – the only sector with negative reaction to beats is Technology
  – that is not a negative sign to us, but is good news priced in there?
• Third, the percentage of companies reporting >10% EPS growth continues to gain. At the midpoint, this is tracking at 43% and sort of solidifies that 1Q23 was the end of the EPS recession. In 1Q23, this figure bottomed at 36% and has been gaining since. Given the earnings surprise level of +6.5%, we expect this figure to keep rising into the second half of EPS season.
• Fourth, there are possible signs China’s stock market and hence, China’s economy might be bottoming. While there has been much talk about the collapse of China lenders in the headlines, it seems like China equities might have made an interim low.
• Mark Newton, Head of Technical Strategy at Fundstrat, two weeks ago suggested this current week is the window for China equities to bottom. For FXI 2.27% , he cited a potential low around $21 and ASHR 1.50%  and KWEB 3.30%  and others would be similarly bottoming. 
• Indeed, there has been a sharp rally Monday, driven in part by explicit policy support cited by China government officials. While this is only the stock market bottom, equities are often leading indicators for the economy. And moreover, an improving China would strengthen the case that US and global PMIs have bottomed. And in turn, that supports improving EPS throughout 2024.

Bottom line: 4Q23 EPS season results solid = supports case for stocks in 2024

The cyclical arguments for EPS to improve in 2024 are strengthened by 4Q23 results season. To me, the stock market is getting stronger, in the sense the fundamental case is improving. Earnings visibility is one factor. The pivot to a dovish Fed is another.

• while many might believe we are in a late cycle economy
• consumer leverage remains low, whether measured by debt service ratios or debt/income
• thus, the recovery in PMIs, upturn in EPS, falling mortgage rates and a pivot by Fed feel more like early cycle
• thus, we still favor a cyclical tilt, IWM 1.50%  XLI 0.03%  XLF -0.35%  and FANG/Technology QQQ 0.80%
• that said, as highlighted recently, we are 14 weeks into a rally.
• and the last two extended rallies of 2022-2023 were 16 and 19 weeks

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Key incoming data February:

• 2/01 8:30am ET 4QP 2023 Nonfarm Productivity Mixed
• 2/01 9:45am ET S&P Global Manufacturing PMI January Final Tame
• 2/01 10am ET January ISM Manufacturing Mixed
• 2/02 8:30am ET January Jobs Report  Hot
• 2/02 10am ET: U. Mich. Sentiment and Inflation Expectation January Final Tame
• 2/05 9:45am ET S&P Global Services & Composite PMI January Final Tame
• 2/05 10am ET January ISM Services Tame
• 2/07 9am ET Manheim Used Vehicle Index January Final
• 2/09 CPI Revisions
• 2/13 8:30am ET January CPI 
• 2/14 PPI Revisions
• 2/15 8:30am ET February Empire Manufacturing Survey 
• 2/15 8:30am ET February Philly Fed Business Outlook Survey
• 2/15 8:30am ET January Retail Sales Data
• 2/15 10am EST February NAHB Housing Market Index 
• 2/16 8:30am ET January PPI
• 2/16 8:30am ET February New York Fed Business Activity Survey
• 2/16 10am ET U. Mich. Sentiment and Inflation Expectation February Prelim
• 2/19 9am ET Manheim Used Vehicle Index February Mid-Month
• 2/21 2pm ET January FOMC Meeting Minutes
• 2/22 9:45am ET S&P Global PMI February Prelim 
• 2/26 9:30am ET February Dallas Fed Manufacturing Activity Survey
• 2/27 9am ET February S&P CoreLogic CS home price 
• 2/27 10am ET February Conference Board Consumer Confidence
• 2/28 8:30am ET 4QS 2023 GDP
• 2/29 8:30am ET January PCE

Key incoming data January:

• 1/02 9:45am ET S&P Global Manufacturing PMI December Final Mixed
• 1/03 10am ET December ISM Manufacturing Tame
• 1/03 10am ET JOLTS Job Openings November Tame
• 1/03 2pm ET December FOMC Meeting Minutes Tame
• 1/04 9:45am ET S&P Global Services & Composite PMI December Final Tame
• 1/05 8:30am ET December Jobs Report Mixed
• 1/05 10am ET December ISM Services Tame
• 1/08 9am ET Manheim Used Vehicle Index December Final Tame
• 1/11 8:30am ET December CPI Details Suggest Tame
• 1/12 8:30am ET December PPI Tame
• 1/16 8:30am ET January Empire Manufacturing Survey Tame
• 1/17 8:30am ET January New York Fed Business Activity Survey Tame
• 1/17 8:30am ET December Retail Sales Data Strong
• 1/17 9am ET Manheim Used Vehicle Index January Mid-Month Tame
• 1/17 10am EST January NAHB Housing Market Index Mixed
• 1/18 8:30am ET January Philly Fed Business Outlook Survey Tame
• 1/19 10am ET U. Mich. Sentiment and Inflation Expectation January Prelim Tame
• 1/24 9:45am ET S&P Global PMI January Prelim Mixed
• 1/25 8:30am ET 4QA 2023 GDP Mixed
• 1/26 8:30am ET December PCE Tame
• 1/29 9:30am ET Dallas Fed January Manufacturing Activity Survey Tame
• 1/30 9am ET January S&P CoreLogic CS home price Tame
• 1/30 10am ET January Conference Board Consumer Confidence Tame
• 1/30 10am ET JOLTS Job Openings December Mixed
• 1/31 2pm ET FOMC Rate Decision Tame

Key incoming data December

• 12/01 9:45am ET S&P Global Manufacturing PMI November Final Tame 
• 12/01 10am ET November ISM Manufacturing Strong 
• 12/05 9:45am ET S&P Global Services & Composite PMI November Final Strong 
• 12/05 10am ET JOLTS Job Openings October Tame 
• 12/05 10am ET November ISM Services Strong 
• 12/06 8:30am ET 3QF 2023 Nonfarm Productivity Strong 
• 12/07 9am ET Manheim Used Vehicle Index November Final Tame 
• 12/08 8:30am ET November Jobs Report Tame 
• 12/08 10am ET U. Mich. Sentiment and Inflation Expectation December Prelim Tame 
• 12/12 8:30am ET November CPI Tame 
• 12/13 8:30am ET November PPI Tame
• 12/13 2pm ET FOMC Rate Decision Dovish
• 12/14 8:30am ET November Retail Sales Data Tame
• 12/15 8:30am ET December Empire Manufacturing Survey Tame
• 12/15 9:45am ET S&P Global PMI December Prelim Tame
• 12/18 8:30am ET December New York Fed Business Activity Survey Tame
• 12/18 10am ET December NAHB Housing Market Index Tame
• 12/19 9am ET Manheim Used Vehicle Index December Mid-Month Tame
• 12/20 10am ET December Conference Board Consumer Confidence Tame
• 12/21 8:30am ET 3QT 2023 GDP Mixed
• 12/21 8:30am ET December Philly Fed Business Outlook Survey Mixed
• 12/22 8:30am ET November PCE Tame
• 12/22 10am ET: U. Mich. Sentiment and Inflation Expectation December Final Tame
• 12/26 9am ET December S&P CoreLogic CS home price Tame
• 12/26 10:30am ET Dallas Fed December Manufacturing Activity Survey Tame
• 12/29 9:45am ET December Chicago PMI

Key incoming data November

• 11/01 9:45am ET S&P Global PMI October Final Tame 
• 11/01 10am ET JOLTS Job Openings September Mixed
• 11/01 10am ET October ISM Manufacturing Tame
• 11/01 10am ET Treasury 4Q23 Quarterly Refunding Press Conference Tame
• 11/01 2pm ET FOMC Rate Decision Dovish
• 11/02 8:30am ET: 3Q23 Nonfarm Productivity Tame
• 11/03 8:30am ET October Jobs Report Tame
• 11/03 10am ET October ISM Services Mixed
• 11/07 9am ET Manheim Used Vehicle Index October Final Tame
• 11/10 10am ET U. Mich. November prelim Sentiment and Inflation Expectation Hot
• 11/14 8:30am ET October CPI Tame
• 11/15 8:30am ET October PPI Tame
• 11/15 8:30am ET November Empire Manufacturing Survey  Resilient
• 11/15 8:30am ET October Retail Sales Data Resilient
• 11/16 8:30am ET November New York Fed Business Activity Survey Tame
• 11/16 8:30am ET November Philly Fed Business Outlook Survey Tame
• 11/16 10am ET November NAHB Housing Market Index  Tame
• 11/17 9am ET Manheim Used Vehicle Index November Mid-Month Tame
• 11/21 2pm ET Nov FOMC Meeting Minutes Tame
• 11/22 10am ET: U. Mich. November final Sentiment and Inflation Expectation Tame
• 11/24 9:45am ET S&P Global PMI November Prelim Mixed
• 11/27 10:30am ET Dallas Fed November Manufacturing Activity Survey Tame
• 11/28 9am ET November S&P CoreLogic CS home price  Tame
• 11/28 10am ET November Conference Board Consumer Confidence Tame
• 11/29 8:30am ET 3QS 2023 GDP Strong
• 11/29 2pm ET Fed Releases Beige Book Tame
• 11/30 8:30am ET October PCE Tame

Key incoming data October

•  10/2 10am ET September ISM Manufacturing Tame
•  10/3 10am ET JOLTS Job Openings August Hot
•  10/4 10am ET September ISM Services Tame
•  10/6 8:30am ET September Jobs Report Mixed
•  10/6 9am ET Manheim Used Vehicle Index September Final Tame
• 10/10 11am NY Fed Inflation Expectations Mixed
•  10/11 8:30am ET September PPI Mixed
•  10/11 2pm ET Sep FOMC Meeting Minutes Tame
•  10/12 8:30am ET September CPI Mixed
•  10/13 10am ET U. Mich. September prelim 1-yr inflation Mixed
•  10/16 8:30am ET October Empire Manufacturing Survey Tame
•  10/17 8:30am ET October New York Fed Business Activity Survey Tame
• 10/17 8:30am ET September Retail Sales Data Hot
•  10/17 9am ET Manheim October Mid-Month Used Vehicle Value Index Tame
•  10/17 10am ET October NAHB Housing Market Index Tame
• 10/18 8:30am ET September Housing Starts Tame
• 10/18 2pm ET Fed releases Beige Book Tame
•  10/19 8:30am ET October Philly Fed Business Outlook Survey Tame
• 10/19 10am ET Existing Home Sales Tame
• 10/19 12pm ET Fed (including Powell) at Economic Club of New York
•  10/24 9:45am ET S&P Global PMI October Prelim Tame
•  10/26 8:30am ET 3Q 2023 GDP Advance Strong
•  10/27 8:30am ET September PCE Tame
•  10/27 10am ET Oct F UMich Sentiment and Inflation expectation Tame
•  10/30 10:30am ET Dallas Fed September Manufacturing Activity Survey Tame
• 10/31 8:30am ET 3Q23 Employment Cost Index Mixed
•  10/31 9am ET August S&P CoreLogic CS home price Mixed
•  10/31 10am ET October Conference Board Consumer Confidence Tame

Key incoming data September

•  9/1 8:30am ET August Jobs Report Tame
•  9/1 10am ET August ISM Manufacturing Tame
•  9/6 10am ET August ISM Services Mixed
•  9/6 2pm ET Fed releases Beige Book Tame
•  9/8 9am ET Manheim Used Vehicle Index August Final Tame
•  9/8 2Q23 Fed Flow of Funds Report Tame
•   9/13 8:30am ET August CPI Mixed
•  9/14 8:30am ET August PPI Tame
•  9/15 8:30am ET September Empire Manufacturing Survey Tame
•  9/15 10am ET U. Mich. September prelim 1-yr inflation Tame
•  9/18 8:30am ET September New York Fed Business Activity Survey Tame
•  9/18 10am ET September NAHB Housing Market Index Tame
•  9/19 9am ET Manheim September Mid-Month Used Vehicle Value Index Mixed
•  9/20 2pm ET September FOMC rates decision Market saw Hawkish
•  9/21 8:30am ET September Philly Fed Business Outlook Survey Mixed
•  9/22 9:45am ET S&P Global PMI September Prelim
•  9/25 10:30am ET Dallas Fed September Manufacturing Activity Survey
•  9/26 9am ET July S&P CoreLogic CS home price
•  9/26 10am ET September Conference Board Consumer Confidence

Key incoming data August

• 8/1 10am ET July ISM Manufacturing Tame
• 8/1 10am ET JOLTS Job Openings Jun Tame
• 8/2 8:15am ADP National Employment Report Hot
• 8/3 10am ET July ISM Services Tame
• 8/4 8:30am ET July Jobs report Tame
• 8/7 11am ET Manheim Used Vehicle Index July Final Tame
• 8/10 8:30am ET July CPI Tame
• 8/11 8:30am ET July PPI Tame
• 8/11 10am ET U. Mich. July prelim 1-yr inflation Tame
• 8/11 Atlanta Fed Wage Tracker July Tame
• 8/15 8:30am ET Aug Empire Manufacturing SurveyMixed 
• 8/15 10am ET Aug NAHB Housing Market IndexTame
• 8/16 8:30am ET Aug New York Fed Business Activity SurveyNeutral
• 8/16 2pm ET FOMC MinutesMixed 
• 8/17 8:30am ET Aug Philly Fed Business Outlook Survey Positive
• 8/17 Manheim Aug Mid-Month Used Vehicle Value IndexTame
• 8/23 9:45am ET S&P Global PMI Aug PrelimWeak
• 8/25 10am ET Aug Final U Mich 1-yr inflationMixed
• 8/28 10:30am ET Dallas Fed Aug Manufacturing Activity Survey Tame
• 8/29 9am ET June S&P CoreLogic CS home price Tame
• 8/29 10am ET Aug Conference Board Consumer Confidence Tame
• 8/29 10 am ET Jul JOLTS Tame
• 8/31 8:30am ET July PCE Tame

Key incoming data July

• 7/3 10am ET June ISM Manufacturing Tame
• 7/6 8:15am ADP National Employment Report Hot
• 7/6 10am ET June ISM Services Tame
• 7/6 10 am ET May JOLTS Tame
• 7/7 8:30am ET June Jobs report Mixed
• 7/10 11am ET Manheim Used Vehicle Index June Final Tame
• 7/12 8:30am ET June CPI Tame
• 7/13 8:30am ET June PPI Tame
• 7/13 Atlanta Fed Wage Tracker June Tame
• 7/14 10am ET U. Mich. June prelim 1-yr inflation Mixed
• 7/17 8:30am July Empire Manufacturing Survey
• 7/18 8:30am July New York Fed Business Activity Survey
• 7/18 10am July NAHB Housing Market Index in-line
• 7/18 Manheim July Mid-Month Used Vehicle Value Index Tame
• 7/25 9am ET May S&P CoreLogic CS home price Tame
• 7/25 10am ET July Conference Board Consumer Confidence Tame
• 7/26 2pm ET July FOMC rates decision Tame
• 7/28 8:30am ET June PCE Tame
• 7/28 8:30am ET 2Q ECI Employment Cost Index Tame
• 7/28 10am ET July Final U Mich 1-yr inflation Tame

Key data from June

• 6/1 10am ET May ISM Manufacturing Tame
• 6/2 8:30am ET May Jobs report Tame
• 6/5 10am ET May ISM Services Tame
• 6/7 Manheim Used Vehicle Value Index May Tame
• 6/9 Atlanta Fed Wage Tracker April Tame
• 6/13 8:30am ET May CPI Tame
• 6/14 8:30am ET May PPI Tame
• 6/14 2pm ET April FOMC rates decision Tame
• 6/16 10am ET U. Mich. May prelim 1-yr inflation Tame
• 6/27 9am ET April S&P CoreLogic CS home price Tame
• 6/27 10am ET June Conference Board Consumer Confidence Tame
• 6/30 8:30am ET May PCE Tame
• 6/30 10am ET June Final U Mich 1-yr inflation Tame

Key data from May

• 5/1 10am ET April ISM Manufacturing (PMIs turn up) Positive inflection
• 5/2 10am ET Mar JOLTS Softer than consensus
• 5/3 10am ET April ISM Services Tame
• 5/3 2pm Fed May FOMC rates decision Dovish
• 5/5 8:30am ET April Jobs report Tame
• 5/5 Manheim Used Vehicle Value Index April Tame
• 5/8 2pm ET April 2023 Senior Loan Officer Opinion Survey Better than feared
• 5/10 8:30am ET April CPI Tame
• 5/11 8:30am ET April PPI Tame
• 5/12 10am ET U. Mich. April prelim 1-yr inflation Tame
• 5/12 Atlanta Fed Wage Tracker April Tame
• 5/24 2pm ET May FOMC minutes Dovish
• 5/26 8:30am ET PCE April Tame
• 5/26 10am ET U. Mich. April final 1-yr inflation Tame
• 5/31 10am ET JOLTS April job openings