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Earnings seasons are always important for the stock market. But the Q1 earnings season will be particularly important given the market’s positive momentum this year.

These earnings releases could prove challenging for the market if they fail to justify the gains we have made in the year-to-date period. 

We dispute the narrative that current earnings estimates are nothing more than a ‘pie in the sky’ and are out of sync with the economic ground reality.

We see this debate as primarily reflective of the ‘soft vs. hard landing’ discourse about the U.S. economy in the wake of the Fed’s extraordinary tightening that is now heading towards the end point.

With respect to 2023 Q1, earnings estimates came down, though they were relatively less severe compared to what we had seen in the preceding two periods. Historically speaking, revisions to Q1 estimates were bigger than normal.

Estimates for the big banks like JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) haven’t moved much, though smaller players have experienced negative revisions since problems in the industry took center stage. A glaring example in this respect is First Republic (FRC - Free Report) whose estimates have literally fallen off a cliff.

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