As the "September curse" takes effect in the US stock market, Wall Street has lowered its earnings expectations.
Since September, most of the 11 sectors of the S&P 500 index have experienced a decline, with only the energy and utilities sectors showing an increase.
According to FactSet data, the S&P 500 index fell by 3.8% in September. It has been declining for the past three weeks and closed at its lowest level since June 9th last Friday.
In September so far, most of the 11 sectors of the S&P 500 index have experienced declines, with only the energy and utilities sectors recording gains as of Monday. The utilities sector has seen a 1% increase this month, while the energy sector of the S&P 500 index has risen by 2.5% in September due to the increase in oil prices.
However, the sharp decline in the US stock market in September is not only due to the rise in bond yields, but more importantly, the downward revision of earnings expectations on Wall Street.
Wall Street lowers earnings expectations for US stocks
In a report on Monday, Nicholas Colas, co-founder of DataTrek Research, stated, "For the past few weeks, Wall Street analysts have been raising or at least maintaining their earnings expectations for S&P 500 index component companies for 2023 and 2024. However, the trend reversed last week and turned to downward revisions." "This may have played an underestimated role in last week's sell-off."
The report stated that last week, Wall Street lowered its earnings expectations for the S&P 500 index in the third quarter to $55.74 per share, a decrease of 0.6% from the previous week, "wiping out" all the upward revisions of the past seven weeks.
Colas stated that analysts lowered their earnings forecasts for the fourth quarter by 0.4% last week, to $57.85 per share, bringing Wall Street's expectations "basically in line with early June."
DataTrek stated that the downward revision of earnings expectations marks a shift from previous market commentary. Colas stated that many trading algorithms use revised earnings forecasts as input variables.
"While minor adjustments to profit estimates are usually insignificant, the trend of these data can sometimes have an impact," he said. "We expect further downward revisions in the coming week as analysts finalize their expectations for the third quarter."
Earnings expectations for 2024 also lowered
As of last week, the S&P 500 index has been declining for three consecutive weeks, as rising bond yields after the Federal Reserve's policy meeting on September 20th weakened stock valuations.
The 10-year US Treasury yield reached its highest level since 2007, after the Federal Reserve hinted at the possibility of raising interest rates again this year and then keeping rates at a higher level for longer than expected by the market.
Higher yields translate into higher borrowing costs, which could put pressure on companies.
As for earnings expectations for next year, DataTrek's data shows that Wall Street analysts lowered their earnings expectations for the S&P 500 index components in 2024 by 0.3% last week, to $247.90 per share, marking the first downward revision in nine weeks.
According to DataTrek's data, they lowered profit estimates for the US stock index in the first half of next year to $57.93 per share and lowered estimates for the second quarter to $60.90 per share.