It is almost the end of the third quarter earnings season on Wall Street with a mixed-bag outcome on revenues and earnings from the U.S. corporations. The number of S&P 500 companies which reported positive earnings surprise is still below the 5-year and 10-year averages and the S&P 500 is reporting its lowest earnings growth since Q3 2020 on a year-on-year basis. 

Out of the 85% of the S&P 500 companies which have reported Q3 2022 results to date, about 70% of them have reported earnings per share above market estimates which is actually below the 5-year average of 77% and also below the 10-year average of 73%.   

Exhibit 1: S&P 500 3Q22 Earnings Above, In-Line, Below Estimates

Source: FactSet.com, November 2022

71% of the S&P 500 companies report revenues above street expectations

In terms of revenues, 71% of the S&P 500 companies have reported revenues which came in above street estimates and also above the 5-year average of 69% and above the 10-year average of 62%. Some of the energy and financial companies that reported positive revenue surprises majorly contributed to the increase in the overall revenue growth seen during the quarter.  

Exhibit 2: S&P 500 3Q22 Revenues Above, In-Line, Below Estimates

Source: FactSet.com, November 2022

Looking ahead

While analysts expect earnings growth of 5.6% for the calendar year 2022, they see a decline in Q4 2022 earnings. Going forward into 2023, analysts are projecting earnings growth of 2.3% and 1.5% for Q1 and Q2, respectively, and an earnings growth rate of 5.9% for the full calendar year of 2023.

When we look at valuations, the S&P 500 index is currently trading at a 12-month forward price-to-earnings ratio of about 16 times – below the 5-year average of 18.5x and the 10-year average of 17.1x  – making it attractive at current levels.