Fourth quarter earnings kick off on Friday, with the big banks.

Will the trend of falling inflation, and the coming change in the direction of monetary policy, manifest in a weak earnings season?

If so, it would not be a negative surprise for markets.  Wall Street has already dramatically lowered the expecations bar for us (as they do).  We started Q4 with expectations of 8% year-over-year earnings growth.  That has now been revised down to just 1.3% growth.

Keep in mind, this comes in an economy that was running at a 2.2% annualized pace (based on the Atlanta Fed’s GDP model).

The analyst community continues to undershoot on earnings and undershoot on economic growth.  So once again, we head into earnings season with a setup for positive surprises.

On a related note, we talked last month about the impact of rising insurance premiums on the CPI data (namely shelter, physician services and transportation).

The yearly change in the motor vehicle insurance component of CPI (for November) was up 19.2%.  From pre-covid levels, it was up 35%.

Guess which industry is expected to be the largest contributor of positive earnings growth in Q4?  Insurance.  

Insurance companies are expected to have grown earnings by 26% over the past year.