May 3rd, 2023

S&P 500 Companies Beat Analyst Expectations, But Year-Over-Year Decline Persists

The S&P 500 companies are performing well in terms of earnings surprises for the first quarter of 2023. It’s worth noting that most companies reporting actual results for Q1 2023 have beaten analyst estimates, and the magnitude of these surprises is above their 10-year averages.

However, the S&P 500 index is still reporting a year-over-year decline in earnings for the second straight quarter. It will be interesting to see how the rest of the earnings season plays out and whether companies can continue to beat analyst expectations.

Overall, the earnings surprises for Q1 2023 are slightly below the 5-year average but above the 10-year average. This suggests that companies are performing better than expected, but perhaps not as well as they have in recent years.

Five of the eleven sectors are reporting year-over-year earnings growth, with the Consumer Discretionary and Industrials sectors leading the way.

However, it’s worth noting that six sectors are reporting a year-over-year decline in earnings, with the Materials and Health Care sectors being hit particularly hard.

After a broad market sell-off like yesterday, I like to go back to trade the SPX.  This is a trade that assumes the market pulled back too much and it will recover, or at least not pull back too much more within the next 45 days.

I’m using the June 16th expiration.  Make sure you’re not looking at the AM ones though.

Prices and strikes will vary by the time you read this, but it’s the option deltas that I use to set up the trade.

Ticker: SPX (S&P 500 index)
Buy to open 16 JUN 3900 put (you pick the strike that is a 0.20 delta)
Sell to open (2x) 16 JUN 3890 put (go down $10 from the put from above)
Buy to open 16 JUN 3870 put (go down $20 from the put you sold above)

This is giving me a credit of $130 on an $870 investment.  Remember, you buy one put, sell two puts, and buy another put.  If you take this trade to full profit, you can make about 15% in 45 days and assuming SPX doesn’t go lower than about 3885 by expiration.  

If you have any questions, comments, or anything we can help with, reach us at any time.

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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation.