Discretionary leads Q2 earnings winners with Energy in the basement
Sakorn Sukkasemsakorn
Goldman Sachs is sticking with its above-consensus earnings for the rest of 2023 with Q2 numbers in.
Overall, S&P 500 (SP500) (NYSEARCA:SPY) (IVV) (VOO) EPS fell 4% year over year, not as bad as the 9% drop expected. Revenues were up 1%, but margins contracted by 92 basis points.
Consumer Discretionary (XLY) saw the biggest EPS growth at 31%, driven by a 116 basis point beat on margins.
"Improved AWS growth and margins enabled Amazon (AMZN) to beat on the top and bottom line," strategist David Kostin wrote in a note. "Strong summer demand aided results for internet travel firms such as Booking (BKNG) and Expedia (EXPE) despite concerns over the health of the US consumer. Improved inventories contributed to a stronger outlook for Nike (NKE) and PulteHome (PHM)."
Consumer Discretionary was followed by Industrials (XLI), with EPS growth of 11%, Consumer Staples (XLP), 9%, Financials (XLF), 8% and Utilities (XLU), 7%.
Communication Services (XLC) saw EPS growth of 6%, with Real Estate (XLRE) up 4% and Info Tech (XLK) at 1%.
Healthcare (XLV) fell 14%, Materials (XLB) -24% and Energy (XLE) -51%.
"Earnings for Energy plunged by 51% year/year, the worst of any sector, due to both lower revenues and lower margins," Kostin said. "Average Brent price (CO1:COM) (BNO) in 2Q was 30% lower than a year ago. Revenues for the sector fell 28% and net profit margins fell to 9.9% from a record high of 14.5% one year ago."
"We maintain our top-down S&P 500 EPS forecasts of $224 in 2023 and $237 in 2024," he said.
2023 EPS forecast by sector

Consumer Discretionary +25%
Communication Services +14%
Industrials +11%
Utilities +10%
Financials +8%
Consumer Staples +6%
Info Tech +1%
Healthcare -10%
Materials -18%
Energy -31%

In 2024, Communication Services and Info Tech are forecast to show the most EPS growth, up 19% and 16% respectively.
"Resilient US economic growth, which is the primary variable in our sales model, should support S&P 500 revenue growth in 2023," Kostin said. 
"Our above-consensus 2023 EPS forecast is also explained by a less pessimistic margin outlook," he added. "Cost discipline, falling input cost inflation, and moderating wage growth should limit the hit to company profit margins."
"In contrast, we view 2024 consensus expectations for 82 bp of margin expansion to 12.0% as too optimistic."

More on the broader market

SPY Loses Its Buy Signal (Technical Analysis, Downgrade)
Federal Reserve Watch: Too Much Money Around?
July CPI: More Good News, But Inflation Winds May Be Changing
Intel, Elliott Wave, Fibonacci And Wyckoff; How To Approach ETFs With Cestrian Capital Research (Growth Investor Pro)
S&P 500 posts second straight week of losses as August pullback in U.S. stocks continues
Catalyst Watch: Eyes On Walmart, Cisco, FOMC minutes and 13F filings