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Market Briefing: Will earnings hold up?

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One of the most hotly contested issues concerning the stock market today is whether earnings will hold up in the face of inflation, a tightening Fed, and rising wages. With 99% of S&P 500® companies having reported 4th quarter 2022 earnings as of March 3rd, here’s an update on where earnings stand and how Frontier strategies are positioned.

The issue

Since the Fed started raising the Fed Funds Rate in 2022, there has been much debate over whether analysts’ earnings estimates are too optimistic. With falling stock prices and high earnings estimates, this left forward P/E (Price-to-Earnings) ratios at low levels, which appear attractive. But, the question has remained, what will earnings be? Will earnings hold up, or will earnings crater? If earnings fall rapidly, P/E ratios will no longer appear as attractive, and investors may not be as willing to pay for what now appear to be overvalued stocks.

Path of earnings estimates since the Fed started raising rates

Forward P/E remains within a normal range relative to the past ten years

S&P 500 earnings data – March 3rd, 2023

The 4th quarter earnings decline was slightly better than analysts had expected, as 69% of companies beat their estimates. However, continued earnings deterioration is expected, and analysts have decreased 1st quarter estimates by 5.7%. Revenues, however, have remained strong, confirming economic data that implies the economy is stronger than most would have expected. This means that margins are shrinking due to higher input costs, higher borrowing costs, higher wages, higher capital expenditures, and general volatility.

Highlights of S&P 500 earnings data:

  • 99% of companies have reported 4th quarter 2022 earnings
  • Earnings in aggregate declined by 4.6%
  • So far in 2023, analysts have lowered 1st quarter earnings estimates by another 5.7%
  • While earnings are deteriorating, revenues continue to grow
  • Revenue growth for the 4th quarter was +5.3%
  • Earnings growth estimate for 2023 is now +2.1%
  • Forward P/E is now 17.5, and the 10-year average forward P/E is 17.2
  • Analysts now predict a 16% price gain for the S&P 500 Index over the next 12 months

What does all this mean for the stock market?

We have probably entered the grind phase of this market cycle. The market has had time to adapt to the shock of higher for longer inflation and interest rates, and now the economy and earnings are left to absorb this cost. From this point, we think economic and earnings data are likely to slowly grind lower. However, the marketplace has likely already priced this in, with earnings estimates rapidly falling.

What does all this mean for Frontier strategies?

Being independent, Frontier can choose from almost any mutual fund or ETF for our strategies. A common theme of many equity mutual funds in Frontier strategies is that investment managers are now seeking to invest in stocks of resilient businesses. Resilient stocks are those few businesses with consistent revenue models. They can raise prices into inflation to maintain margins, which may offer a margin of safety through their balance sheets or income statements. Security selection will likely matter more going forward as economic forces disparity impacts some businesses more than others, and some companies may even become stronger through this grind. Frontier believes a sharper focus beyond indexing is needed for this type of market environment, and resilience is a hidden layer we seek to incorporate into our strategies.


Exclusive reliance on the information herein is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell any securities, commodities, treasuries or financial instruments of any kind. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal, investment or tax advice.

It is generally not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third party investable instruments (if any) based on that index.

The S&P 500 index consists of U.S. Large Cap Equities, which is a market-value-weighted index of 500 stocks that are traded on the NYSE, AMEX, and NASDAQ.

Frontier Asset Management LLC is a Registered Investment Adviser with the Securities and Exchange Commission. The firm’s ADV Brochure and Form CRS are available at no charge by request at or 307.673.5675 and are available on our website They include important disclosures and should be read carefully.


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