The market is too bullish on corporate earnings for 2023. Here’s why.

After several attempts this month the S&P 500 SPX
it finally managed to close above the 4,000 level. Happy Thanksgiving! The bulls will now want to see that barrier turn into support and will look to the next hurdle, the 200-day moving average, currently around 4.062.

But for the market to extend its rally into next year, at least one of two things will probably have to happen. They will have to increase company earnings or the multiple applied to earnings will have to increase. The latter can occur if investors become more optimistic, for example, in anticipation of a Fed pivot.

However, according to Peter Ganry, head of equity strategy at Saxo Bank, anyone hoping for earnings growth while also managing to remain flat for 2023 “is very naive”.

Ganry notes that the estimated 12-month forward earnings per share on the S&P 500 is currently at $235.34, which is 7% higher than the full-year 2022 forecast EPS of $219.38. It’s too high, he reckons.

“There is nothing unusual about this divergence that conflicts with reality as sell-side analysts have a natural bias for longs…and are slow to react and incorporate new information. The fact that the S&P 500 12-month EPS estimate is only 4% from its recent peak, despite ongoing margin compression, says it all.”

Indeed, it is excessive optimism about corporate margins that can stumble investors. It’s important. As the chart below shows when looking at a short time period such as a year, changes in earnings are strongly associated with changes in operating margin.

Source: Saxo Bank.

“If you take earnings per share of $220 next year and divide that by expected revenue per share of about $1,800, which fits quite well with a 1-year lag in US nominal GDP growth, you get a net profit margin of 12.2% which is exactly where the 12-month net profit margin was in September,” says Ganry.

This implies that S&P 500 companies can maintain their net profit margin next year. This is “a completely detached assumption” for several reasons.

First, companies have consistently talked about margin pressures in their third-quarter earnings reports, particularly as they pertain to wage pressures and also raw material and energy costs. Indeed, wage growth – typically the biggest cost for many companies – in the US and Europe is proceeding at the fastest pace in decades.

“High wage growth is difficult to offset in an inflationary environment when recent price hikes by companies have now reached a point where they are destructive to volume growth (Home Depot is a recent example).” observes Ganry.

Next: “Operating margin and net profit margin are both coming down from historically high levels and margins are an average recovery process, so this alone indicates that margins will tend to decline from current levels,”

Ganry adds, “The fact that the third quarter net profit margin in the S&P 500 is 11.9% (below the final 12-month figure) and on a downward trend suggests that margins are falling more faster than expected”.

Source: Saxo Bank.

Another downside risk to earnings per share in 2023 is that revenue growth could be lower than current estimates as nominal GDP growth declines to 6.7% annualized in the third quarter, down from the 12-year average. 2% annualized in 2021.

Finally, the upward movement in interest rates as the Fed continues to fight inflation will drive up corporate borrowing costs. “Not by much because only 20% of outstanding debt will be refinanced over the next 12 months, but that will still be subtracted from operating income before we hit EPS, impacting net profit margin.”

“If we are right on our 2023 operating margin call, the impact on the S&P 500 will vary depending on equity risk premium (P/E ratio), revenue growth and actual net profit margin,” he says ganry. The S&P 500 is sensitive to these variables.


The markets are entering the festive lull on a subdued note. S&P 500 ES00 futures
are slightly, with 10-year Treasury yields benchmarking BX:TMUBMUSD10Y
just changed to 3.754%. CL oil
it is under pressure again, however, amid concerns about weak Chinese demand as Beijing implements more COVID-19 lockdowns.

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The buzz

Share Credit Suisse CH:CSGN
it tumbled 5% to approach historic lows after the besieged Swiss bank provided the latest in a long line of miserable trading updates.

Apple AAPL shares
they are slightly weaker in pre-market trading as news emerges that workers at China’s largest iPhone factory have been beaten and arrested.

A surprise quarterly loss revealed after the closing bell on Wednesday hit Nordstrom JWN stock,
down nearly 10%.

With the markets closed on Thursday for Thanksgiving and everyone seemingly going shopping on Friday, it appears that all of the week’s economic data was crammed in on Wednesday. So, taking a deep breath…here it is…

At 8:30 Eastern we have the weekly initial jobless claims along with October durable goods orders. At 9:45 comes the November S&P flash US manufacturing PMI and services PMI. Then, at 10am, the new October Home Sales report is delivered simultaneously with the November University of Michigan Consumer Sentiment Index and 5-Year Inflation Expectations. Finally, the minutes of the Federal Reserve’s recent rate-setting meeting will be released at 2pm.

Ronaldo is out and now the Glazers could also leave Manchester United. The US owners of English Premier League soccer giants, who also own the Tampa Bay Buccaneers, say they are exploring options that could include a sale of the club. Shares of United MANU
it jumped 15% late Tuesday and is adding another 11% in Wednesday’s premarket action.

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Home purchases by investors drop by 30% due to rising interest rates.

Five things not to buy on Black Friday.

The graph

Consider this from Bespoke Investment if you’re back from Thanksgiving and fancy trading into the new year.

“The S&P 500 was up from the close on the Wednesday before Thanksgiving through the end of the year about three-quarters of the time, with an average gain of 1.93%. However, when momentum has dragged the index down since the start of the year, performance the rest of the year has been less positive. Again looking at years in which the index fell at least 10% before the week of Thanksgiving, as was the case this year, positive returns through the end of the year were less common and only half as common sometimes with an average drop of 0.1%. ” says Bespoke.

Source: Tailored Investment.

Better tickers

Here are the most active stock market tickers on MarketWatch at 6:00 am Eastern.


Security name



GME extension


AMC extension

AMC entertainment



AAPL extension

Bed Bathroom and beyond

AMZ extension

COSM extension

Cosmos holdings


Mullen Automotive


AMC Entertainment preferred

TS extension

Taiwan semiconductor

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