While markets have been laser focused on a tumultuous 2022, we take a closer look at the earnings picture for 2023 for U.S., European, and U.K. markets.
Earnings have remained resilient at the index level in 2022, but we began to see the cracks in the U.S when excluding energy. More specifically, the S&P 500 has seen its second consecutive quarter of negative earnings growth when stripping out energy and marks a turning point as we’ve only seen this twice before – during the Global Financial Crisis of 2008-2009 and the COVID pandemic of 2020 (S&P 500 22Q3 Earnings Review: Starting to see the cracks, Nov. 16, 2022).
In the fifth edition of ‘Product Insights’, we look at full-year 2023 EPS estimates at an index level for various markets using I/B/E/S Global Aggregates which is found in Refinitiv Datastream. Users can calculate numerous datapoints for hundreds of indices such as year-over-year growth rates, earnings revisions, and profit margins.
Exhibit 1 looks at the bottom-up 2023 EPS estimate for the Russell 1000, Russell 2000, and Russell 3000. Generally speaking, analyst estimates peaked in Q2 2022 and have since then have rapidly declined across all three indices. Russell 2000 has seen the largest decline year-to-date (-20.0%) in comparison to a -6.6% decline for the Russell 1000 and a -7.3% decline for the Russell 3000.
Exhibit 1: 2023 EPS Estimate for Russell 1000/2000/3000
- Product Insight: To plot the 2023 EPS estimate for an index, use datatype AFCMNXXXX (XXXX is the year desired). For example, a user can enter “FRUSS1L(AFCMN2023)” view the 2023 EPS estimate for the index. Users can also use relative dates (i.e., FY1, FY2, FY3).
Exhibit 1 highlights the view amongst analysts that large-cap companies who typically have higher profitability, pricing power, margins, and scalability will be able to better navigate an uncertain 2023 riddled with recession worries than its smaller-cap counterparts.
In the U.K., we look at the FTSE 100, 250 and FTSE All-Share index to paint a similar picture as above. The FTSE 100 has seen a meteoric rise in 2023 EPS estimates and has increased 22.2% year-to-date. This can be explained by the fact that most companies in the index are multinational conglomerates who generate most of its revenue abroad, which will also provide a tailwind given the strength of the U.S. dollar. Furthermore, the FTSE 100 has a value-tilt from an index composition with higher weights in value-sectors such as Energy (13.3% weight) and Financials (16.1% weight) in comparison to the Russell 1000 which has an Energy weighting of 4.9% and 11.8% weight in financials.
While the FTSE 100 has seen its 2023 EPS estimate revised upwards 22.2% year-to-date, the FTSE 250 has seen its estimate decline 3.5% over the same period highlighting the challenges smaller companies face from higher labour and commodity costs combined with a recessionary outlook.
Exhibit 2: 2023 EPS Estimate for FTSE 100/250/All-Share
- Product Insight: Datastream allows for ‘dynamic annotations’ which update as new data appears. For example, users can add a ‘text box’ to a graph and type ‘{DPL#(PCHV#(X,YTD),1)}%’ – this will display the year-to-date percent change (to 1 decimal point) for the index.
We highlighted at the beginning of this note, that we started to see the ‘cracks’ in U.S. earnings when excluding Energy. We end this note by looking at 2023 earnings for the S&P 500, S&P/TSX, and STOXX 600 at both an index level and ex. Energy perspective.
There appears to be a consensus by markets those earnings are too high and that have remained resilient which appears to be the case for these three indices. Exhibit 3 shows the 2023 EPS estimate in blue for all three regions and we can see that year-to-date, estimates have only declined in the S&P 500 (-5.9%) while actually increasing for the S&P/TSX (+4.7%) and STOXX 600 (+9.8%).
While this conforms to the market consensus view, if we strip out Energy, we see a vastly different picture which shows that estimates have declined significantly year-to-date for the S&P 500 and STOXX 600.
The S&P 500 has seen its 2023 EPS estimate ex. Energy decline 23.8% YTD, while the STOXX 600 has seen an even larger decline of 29.1% over the same period. The S&P/TSX has remained resilient, only declining 2.4%.
Exhibit 3: 2023 EPS Estimate for S&P 500, S&P/TSX & STOXX 600
- Product Insight: Datastream allows users to create multiple panes in a single chart for maximum flexibility. To find this option, click on the pane’s icon in Datastream Charting where you can choose from a pre-set options or create your own.
Conclusion
Users can gain valuable insights into earnings by using I/B/E/S Global Aggregates within Refinitiv Datastream (can also be accessed within Refinitiv Workspace for Analysts & Portfolio Managers).
In this product insight, we highlight a salient point that 2023 EPS estimates for U.S. and Europe have fallen dramatically this year when excluding energy. Any further weakness into 2023 (weaker demand or declining margins) can further exacerbate downward revisions.
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