Fourth-quarter earnings are shaping up to be the best of 2023, but there’s a catch

Here’s how big of a surprise corporate profits have been this earnings season: the fourth-quarter is now shaping up to be the best of 2023.

Despite ongoing macroeconomic concerns that have hampered demand and weighed on consumer sentiment, almost halfway into earnings season, profits are clearly coming in far better than anybody expected.

Helping companies’ bottom lines this round: easing input costs; more emphasis on cost controls and efficiencies; and significantly reduced expectations.

A plethora of significant earnings beats among some very important S&P 500 companies like Amazon, Meta, Apple, Chevron, Exxon Mobil, Merck and Bristol-Myers Squibb have moved the Q4 growth rate notably higher late this week.

LSEG, formerly Refinitiv, is now seeing a nearly 8% rise in earnings growth this season. That’s far better than the 4.7% expected just three weeks ago, right before the big banks reported results.

Stronger-than-expected results from three sectors are particularly notable:

• Energy – 90% of the companies have beat earnings estimates, with profits coming in almost 14% above expectations
• Health Care – 85% have beat on the bottom line, with earnings coming in nearly 11% above expectations
• Tech – 84% have posted earnings beats, with earnings more than 5% above expectations

As for the S&P 500 as a whole, Q4’s current EPS growth rate of 7.8% exceeds the 7.5% growth seen in all of Q3 – and is now tops for the year.

Currently, 80% of S&P 500 earnings results have beat estimates, slightly higher than normal trends, and earnings have come in more than 6% above expectations — not quite the 7% to 8% upside seen in the previous two quarters, but still a very strong number.

One very important caveat: These strong figures come after earnings expectations tumbled going into the reporting season. Back on October 1, S&P 500 fourth-quarter earnings were expected to grow 11% year over year, according to LSEG.

Although the earnings picture has significantly improved since the start of 2024, results are still far below what Wall Street had hoped for a mere four months ago.

And, as good as Q4 results have been, there’s still no positive momentum looking forward. Both Q1 and full-year 2024 earnings estimates have come down since January 1 as many companies have issued cautious guidance this earnings season.

— Charts by CNBC’s Gabriel Cortes.