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Commentary from Frost Investment Advisors | April 24 , 2023

Central Bank Liquidity Buoys Equities Despite Softening Earnings and Commercial Real Estate Fears

Earnings are Coming Down

Though first-quarter earnings have been coming in better than expected, analyst estimates have been coming down throughout 2023. Since January, S&P 500 earnings per share estimates have fallen from $230 to $221. Analysts still anticipate a sharp rebound beginning in the second quarter through the end of the year, which seems unlikely given the many forecasts for a weakening economy. First-quarter earnings are expected to decline 3.7% year over year, compared to an expected fall of only 0.3%. This quarter’s earnings were boosted by surprisingly good results from the technology sector last week. The drop is a continuing trend, with fourth quarter earnings also falling 4.6% year over year. Earnings peaked in the second quarter of 2022 at $56.64 per share, and current estimates are that they will be down more than 8% from that peak. Revenue growth expectations are much more positive, with a 2.9% year-over-year increase. However, this rate is well below inflation, which may reflect consumers spending more but buying less. The large discrepancy in growth between earnings and revenue can also be partially attributed to inflation eating into margins.

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