The third-quarter earnings season will begin in earnest towards the end of next week with several important US banks reporting. The focus will be, more than ever, on how much of the economic weakness is feeding into companies’ earnings and how comfortable management will be in elaborating on their guidance. Looking ahead, the estimated earnings growth rate for S&P 500 earnings in this year’s third quarter is 2.9 per cent, which, if confirmed, would mark the lowest earnings growth rate reported by the index since Q3 2020. The trajectory for earnings estimates for the remaining two quarters of this year and the first two quarters of 2023 has been revised decidedly lower throughout the course of the year. Estimates for the third quarter have fallen from more than 11 per cent at their peak in June, while fourth-quarter estimates have been cut more than half from their peak at the start of the year. One of the clear themes throughout the bear market we have had so far this year has been the significant reduction in valuation multiples; namely, those based on forward and trailing earnings. The widely followed forward price-to-earnings (P/E) for the S&P 500 collapsed from 22.9 times...
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