As the curtain rises on the third quarter of 2023, the economy is with speculation and predictions right now.

US publicly listed companies are at the forefront of this financial theater, with their earnings reports being the most awaited act.

CFD trading activity (in which leverage and short selling carries many risks) is always a mirror to these anticipations.

After all, markets adjust to what they think lies ahead. This article will look at the earnings expectations in Q3, but also the broader economic context. 

A Complex Backdrop 

The global economic stage in 2023 is far from simple. A blend of challenges, from fluctuating interest rates to geopolitical upheavals have made certain sectors and trade relations volatile.

Yet, amidst this backdrop, the indomitable spirit of the US market shines through.  

The S&P 500 presents an intriguing narrative, as always. Despite the prevailing challenges, there’s an optimism surrounding its Q3 earnings.

This positive sentiment is a refreshing change from the cautious and somewhat somber tones observed in the past two earnings seasons. 

A Complex Backdrop

US Earnings 

The S&P 500’s earnings trajectory offers a tale of resilience and potential resurgence.

While analysts predict a marginal dip in earnings, marking a continuation of the decline observed over the past quarters, there’s more to the story.

The projected 0.3% year-on-year dip, though a decline, is the smallest in the recent series of quarterly contractions.  

This subtle shift hints at a potential inflection point for the US corporate sector. Further bolstering this optimism is Refinitiv’s data, which forecasts a 1.3% uptick in earnings per share for S&P 500 entities compared to the previous year.

This projection, especially in the wake of a 2.8% decline in the preceding quarter, underscores the market’s inherent strength and adaptability. 

A Look At Different Sectors 

A closer look at sector-specific growth patterns reveals a plethora of opportunities and challenges.

Some projections are an overall growth of 1.3% for revenue growth. The consumer discretionary sector emerges as a main beacon of hope, but also the real estate sector.

While these sectors bask in the glow of positive forecasts, it’s not a universal trend.

The Energy, Materials, and Healthcare sectors appear to be on shakier ground, with anticipated declines clouding their immediate future. 

Corporate Projections 

Corporates, with their strategies and forecasts, often serve as the compass guiding market sentiments. In this context, the projections from 118 S&P 500 firms provide invaluable insights.

A majority, about 64%, have a bearish outlook, reflecting the complexities of the current economic environment.  

However, the remaining 36% showcase optimism, signaling pockets of growth and opportunities.

The broader sentiment for Q3, when juxtaposed against recent quarters, leans towards a more balanced, if not cautiously optimistic, stance.

The upcoming earnings season has potential to outshine the performance since Q3, 2022. 

The Broader Economic Landscape 

Deloitte’s Q3 2023 forecast for the US economy paints a cautious but optimistic picture, hinting at a potential “soft landing” amidst the prevailing challenges.

Economic Landscape

The forecast suggests that while the US economy is showing signs of slowing down, it’s not necessarily a cause for alarm.

In fact, the Gross Domestic Product (GDP) seems to be growing at a pace faster than its long-term potential, indicating a robust economic foundation. 

Interestingly, the narrative around a potential recession, which dominated discussions in early 2022, seems to be waning.

Despite the initial fears and the surge in internet searches around the topic, the actual economic indicators tell a different story.

Inflation, which was a significant concern, has moderated without leading to a recession. The labor market remains strong, as it has done for so long now, with unemployment rates impressively low. 

However, Deloitte does highlight some areas of concern. The Federal Reserve’s (Fed) tightening measures, initiated to control inflation, might have latent impacts that haven’t fully manifested yet.

There’s a possibility that the economy might feel the repercussions of these measures in the near future, especially since it’s been less than two years since the Fed began raising interest rates.

Additionally, the current rate hikes have introduced an element of fragility in the financial markets, increasing the risk of a potential financial crisis. 

The US economy is marching into the latter part of the year with sustained growth, moderated inflation, and a renewed sense of optimism.

The discussions around a potential recession seem to be just that – discussions. 

Concluding Thoughts 

The US Q3 2023 earnings season is unfolding in a landscape dotted with challenges.

However, the resilience of the market, combined with the optimism permeating the corporate sector, suggests a potential turning point.

Inflation is coming back down to normal levels without a recession, with labor markets and GDP remaining strong.  

As earnings results trickle in, they will not only shape the immediate financial narratives but also lay the groundwork for future strategies.

The coming weeks promise a few surprises, but generally sentiment is less bearish than in recent quarters.