For the First Time in Two Years, Wall Street Has Raised Quarterly Profit Forecasts, and Executives Are Starting to Relax About the Possibility of a Recession

After nearly a two-year period fraught with concerns about an impending recession, a sense of growing optimism regarding the economy is gradually permeating Wall Street's outlook on individual companies' quarterly performance. Analysts are becoming increasingly positive about the forthcoming corporate profits.

‍

Traditionally, as the earnings season approaches, expectations for quarterly results tend to diminish. However, in a noteworthy departure from this trend, analysts have, in fact, revised their profit forecasts upwards over the past two months. This development, revealed in a recent report released on Friday, signifies the first such optimism surge in two years.

‍

While dissenting voices of caution are still present, during the months of July and August, Wall Street analysts raised their estimates for third-quarter earnings per share for the 500 companies comprising the S&P 500 Index. FactSet's report highlights, "In fact, this quarter marked the first increase in the bottom-up EPS estimate over the first two months of a quarter since Q3 2021," as stated by John Butters, FactSet's Senior Earnings Analyst.

‍

The estimates for third-quarter earnings per share experienced a 0.4% uptick from June 30th to August 31st. Similarly, the fourth-quarter estimates witnessed a 0.6% increase over the same period.

‍

It is customary for these estimates to taper off as earnings release dates draw near, as initial optimism gives way to the realities of financial performance. However, the Federal Reserve's recent announcement, forecasting a "noticeable slowdown" instead of a recession, has contributed to this shift in sentiment. Some analysts also contend that the August jobs report served as the catalyst for the Fed to halt its series of interest-rate hikes, which were implemented to curtail consumer borrowing and spending while addressing inflation.

‍

The FactSet report additionally reveals a decline in the frequency of executives mentioning a recession during earnings calls, based on an analysis of earnings call transcripts. Over the period spanning June 15th to August 31st, the analysis reveals a continuous decrease in the number of S&P 500 companies referencing "recession" on such calls over four consecutive quarters.

‍

However, it's worth noting that not all analysts share the same degree of optimism. JPMorgan analysts recently expressed skepticism about the collective corporate profit outlook for 2024, deeming it "too optimistic." Furthermore, some more bearish analysts have pushed their recession predictions to the following year.

‍

In the upcoming week, only two S&P 500 companies are slated to release their quarterly results, according to Trade Algo. These companies include e-signature platform Docusign Inc., Smith & Wesson Brands Inc., C3.ai Inc., and Gitlab Inc.

‍