This Earnings Season Will Hurt S&P 500 Stocks: Survey

Investors expect gloomy corporate reports to drive down S&P 500 stocks this upcoming earnings season, according to the latest weekly Markets Live Pulse survey from Bloomberg.

While stocks rallied in the first two quarters of 2023, 55% of the 346 investors surveyed by Bloomberg believe this season will have a negative impact on equities — even though earnings seasons during the last 10 years typically had a positive impact on the stock market.

Wall Street rallied in the first half of the year as prior earnings reports surpassed gloomy expectations. But now, some investors are wary of the fundamentals behind that surge.

“With second-quarter earnings beginning this week, ‘better than feared’ likely isn’t going to cut it anymore,” Morgan Stanley’s Michael Wilson wrote in a note viewed by Bloomberg.

Plummeting profits at Nike, layoffs at Fedex and gloomy reports from Exxon and Shell have all contributed to the grim market sentiment. Fifty-four percent of professional investors and 58% of retail investors surveyed predicted more profit warnings would emerge.

Forty-two percent of respondents said the negative earnings season they’re predicting comes from a further tightening in financial conditions, including higher interest rates that have made the cost of capital and existing debt more expensive. Other respondents said an economic slowdown, rising costs and high inflation, now at levels not seen in four decades, would be the main culprits behind corporate earnings reports.

Nearly half of investors surveyed expected a slump in earnings per share to last through September.

The survey results echo fears that there could be an upcoming recession, which U.S. Treasury Secretary Janet Yellen said this weekend is “not off the table”. Still, economic outlooks vary depending on the analyst you ask, and Chicago Federal Reserve President Austan Goolsbee said last week that the U.S. is on track to avoid a further economic downturn. 

Any signs of easing inflation and cost cutting could drive up equities, according to the Market Live Pulse survey.