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22V 2Q Earnings Survey: Investors Expect a Strong Quarter, Especially for Tech

Published on July 20, 2023

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By

Dennis DeBusschere

Brian Herlihy

Kevin Brocks

Sophia Wang

Quick summary, investors:

  • Think small caps will outperform the NASDAQ.
  • Expect 2Q earnings to be a positive or neutral market catalyst.
  • Think 2Q eps will end up at -6% y/y.
  • Expect Tech to have the best 2Q eps growth and Energy the worst.

Small Caps: Small caps have outperformed the S&P by +4.1% in two weeks (98th %tile performance) as economic narratives have improved. In the Daily Note today we detailed how we prefer the average stock through earnings season (more HERE). Small caps have market performed the Nasdaq though, as Tech returns continue to be strong. The investors we polled expect that to change; 69% think the Russell 2000 will outperform the Nasdaq over the next 3 months.

2Q Index Earnings: Only 18% of our survey respondents think 2Q earnings will be a negative catalyst. 38% expect a positive impact and 44% a neutral impact.

Our quant work suggests another good earnings season. Revisions have set a low bar (HERE and chart below) while sentiment has recovered (HERE).

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Consistent with the above, investors are anticipating better than consensus y/y earnings growth. Median estimate is -6% y/y. FYI, if revisions track their historical 25th percentile norm, 2Q EPS will end up contracting -2.7%. Only 10% of our survey respondents expect earnings growth to be -2.7% or better.

2Q Sector Earnings: Our survey respondents overwhelmingly think Tech will have the best 2Q earnings growth. Industrials are popular as well. Energy is strongly out of favor this quarter.

Consensus estimates are not particularly strong for Tech or Industrials. Energy does indeed have terrible eps growth projections.

Source: Bloomberg, 22V Research

As we discussed this morning (HERE), Tech earnings sentiment has deteriorated. On an absolute level, it is one the worst sectors (only Financials and REITs are worse with their well-publicized challenges). Multiples, meanwhile, have expanded. We wouldn’t short Tech – we like it longer term – but earnings season may be a near-term headwind, especially given high expectations.

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