The fourth quarter of 2023 has brought an unexpected surprise in corporate profits, outperforming all expectations. Despite concerns over macroeconomic factors and their impact on consumer sentiment and demand, halfway through the earnings season, companies have been reporting better-than-anticipated profits. Various factors have contributed to this impressive performance, including reduced expectations, lower input costs, and a renewed emphasis on cost controls and efficiencies. Notably, a significant number of S&P 500 companies, such as Amazon, Meta, Apple, Chevron, ExxonMobil, Merck, and Bristol Myers Squibb, have reported substantial earnings beats, lifting the Q4 growth rate considerably in recent weeks.
Several sectors have stood out with stronger-than-expected results, with notable beats in three key areas. The energy sector has been particularly impressive, with 90% of companies exceeding earnings estimates and profits surpassing expectations by almost 14%. In the healthcare sector, 85% of companies have beaten earnings expectations, resulting in earnings that are nearly 11% higher than anticipated. The tech sector has also performed well, with 84% of companies reporting earnings beats, exceeding expectations by more than 5%.
Taking into account the entire S&P 500, the current growth rate of Q4 earnings per share stands at 7.8%. This figure is higher than the 7.5% growth seen in Q3 and now represents the highest growth rate for the year. Notably, 80% of S&P 500 companies have exceeded earnings estimates, slightly surpassing the usual trend. Additionally, earnings have come in more than 6% higher than expected, a strong number indicating the overall positive performance of companies.
However, it is essential to consider the context surrounding these impressive figures. Expectations for fourth-quarter earnings had significantly declined leading up to the reporting season. As of October 1, LSEG reported that S&P 500 fourth-quarter earnings were expected to grow by 11% YoY. Despite the significant improvement since the beginning of 2024, the current results fall short of the projections made just four months ago.
Although the fourth quarter of 2023 has delivered exceptional earnings results, the outlook for future earnings is less optimistic. Both first-quarter and full-year 2024 earnings estimates have decreased since the beginning of the year, as numerous companies have issued cautious guidance during this earnings season. This raises concerns about the sustainability of the positive momentum witnessed in Q4 2023.
The surprising corporate profits of the fourth quarter of 2023 have defied expectations and outperformed the predictions. The combination of reduced expectations, lower input costs, and increased emphasis on cost controls and efficiencies has contributed to an impressive earnings season thus far. Notable beats in the energy, healthcare, and tech sectors have further bolstered the overall strong performance of the S&P 500. However, it is important to highlight that while these results exceed initial downgraded expectations, they still fall short of the projections made earlier in the year. Additionally, cautionary guidance from companies for future earnings diminishes the positive momentum moving forward.