Michael Wilson at Morgan Stanley is still making sense to me.
Better than expected earnings guidance continues to roll in, but a 2H ’23 EPS rebound is contingent on a solid macro backdrop. This week, we further explore this theme, highlighting leading EPS surprise and margin gauges as well as our latest AlphaWise Consumer Survey.
If the macro holds up…The 1Q EPS beat rate is strong (+6-7%),and out quarter guidance has proven to be durable and better than we expected coming into the quarter. That said, 1Q estimates came down 16% ahead of reporting season (double the 20-year average decline over equivalent periods), setting a more manageable bar from a beat rate standpoint. Further, the macro data did turn up in January and February. Recall that economic surprise indices inflected and several business cycle indicators posted strong prints over this period. This combination likely provided support for a strong EPS beat in 1Q,and is likely helping to build confidence for the forward looking path. However,as we discussed last week, many of the leading macro data points have fallen more recently and are not pointing to a similar run rate in terms of EPS strength looking forward through year end. This comes as many companies position ’23 growth recoveries as being contingent on a solid macro backdrop. This week, we further unpack this theme,highlighting leading indicators that point to downward trends in EPS surprise and margins over the coming months while also acknowledging that should the leading data improve, the likelihood of the 2H EPS recovery consensus expects would rise.
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