A Look Ahead To Q4 US Earnings Season

Michael Brown
Senior Research Strategist
Corporate reporting season is once again upon us, with firms set to begin earnings releases from this week with, as is typical, the major Wall St. banks kicking things off later this week. Though reports from the ‘Magnificent Seven’ which powered markets higher for much of 2023 are still a fortnight or so away, earnings season will be watched as closely as always, with benchmark equity indices continuing to trade just a whisker away from all-time highs.

For earnings season overall, consensus sees YoY earnings growth of just over 1%, marking the second straight quarter of earnings growth – and firmly marking the end of the 2023 earnings recession – if delivered. Revenue, meanwhile, is seen rising around 3% YoY during the quarter, marking the 12th consecutive quarterly increase.


As mentioned, banks kick off earnings season this week, with BofA, Citi, JPMorgan and Wells Fargo reporting before the open, followed by Goldman Sachs and Morgan Stanley early next week.

There will be several areas under the microscope with bank earnings, besides top- and bottom-line figures. Credit quality will be of particular interest, as the lagged impacts of the Fed’s tightening cycle continue to be felt, even if the macro conversation has moved on to when, and by how much, the FOMC are likely to ease policy this year. The amount of such non-performing loans is set to have risen sharply in the fourth quarter which, coupled with the ongoing dealmaking slump, and one-time charges being taken due to FDIC fees related to the collapse of Silicon Valley Bank (and others) last year, poses a downside risk to earnings in the fourth quarter.

CEO commentary around the aforementioned tightening cycle will also be of particular interest, not only in terms of the outlook that is foreseen over the course of the year ahead, but also the degree of deposit flight (largely into money market funds) seen as a result of the 500bp of hikes that the Fed delivered, as well as how net interest margins (NIMs) are likely to evolve as and when the FOMC begin to ease policy.


The financials sector more broadly has experienced a relatively average last 12 months, with the S&P 500 financials index having gained just shy of 8% over that period. Unsurprisingly, given the regional banking blowup last March, the banks sub-index has fared marginally worse, with the KBW Bank Index having somewhat recovered from the intra-year lows, albeit having thus far failed to reclaim the highs seen just prior to the aforementioned issues becoming evident, and the Fed’s BTFP scheme being unveiled.


Elsewhere in terms of earnings season, there are a few other stories worth watching. At broad level, Dow traders – owing to the price-weighted nature of the index – would be well-served by paying particular focus to earnings from UnitedHealth (UNH – 12th Jan), Goldman Sachs (GS – 16th Jan), Microsoft (MSFT – late-Jan), Home Depot (HD – late-Feb), and Amgen (AMGN – late-Jan), with those stocks being the top 5 weighted in the index, accounting for around a third of the index in total, with UNH alone holding a near-10% weight.


Of course, reports from the so-called ‘Magnificent Seven’ will also be in focus, not least owing to the remarkably strong performance exhibited by these stocks last year, and vastly outperformed the remaining 493 constituents in the S&P 500.


While many on the sell-side have been pointing to the likelihood that 2024 marks a year where value and small caps outperform, compared to their mega-cap counterparts, the opposite scenario appears more likely to pan out if, as most expect, economic momentum wanes as the year progresses.

Long Nasdaq/short Russell is a potential spread trade through which to express such a view, though earnings from the ‘big tech’ names aren’t due until late-January/early-February.