This report updates the trailing-twelve-months (TTM) Economic Earnings for the NC 2000[1] and all sectors as of 11/14/23. 

Economic earnings are rising for some sectors and falling in others, and the magnitude of change varies by a wide margin. Trailing TTM Economic Earnings in 3Q23 were lower than 2Q23 TTM levels for eight of eleven sectors.

This report is an abridged and free version of All Cap Index & Sectors: Economic Earnings Update For 3Q23, one of our quarterly reports on fundamental market and sector trends. The full reports are available to our Professional and Institutional members or can be purchased below.

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The full version of this report analyzes the economic earnings[2] (which adjust for unusual items on both the income statement and balance sheet) and GAAP earnings for the NC 2000 and its sectors (last quarter’s analysis is here).

Economic earnings provide a more accurate measure of the true underlying cash flows of businesses than GAAP earnings. Reports on the drivers of economic earnings are here.

This report leverages our cutting-edge Robo-Analyst technology to deliver proven-superior[3] fundamental research and support more cost-effective fulfillment of the fiduciary duty of care.

Economic Earnings Update For 3Q23

See Figure 1 in the full version of our report for the chart of Economic Earnings vs. GAAP earnings for the NC 2000 and each of its eleven sectors from December 1998 through 3Q23.

The NC 2000’s 3Q23 Economic Earnings continue to follow the trend we foresaw in our 1Q22 report All Cap Index & Sectors: 1Q22’s Soaring Economic Earnings Aren’t Sustainable. Indeed, one of the headwinds facing Economic Earnings is a rising weighted average cost of capital (WACC). Investors can protect themselves by paying closer attention to Economic Earnings, which account for the effects of changes to WACC.

Key Details on Select NC 2000 Sectors

The Financials sector saw the largest QoQ improvement in TTM Economic Earnings.

The Technology sector’s TTM Economic Earnings rose in 3Q23. On the flip side, the Utilities sector has the lowest TTM Economic Earnings and was one of eight sectors that destroyed shareholder value in 3Q23.

Below, we highlight the Utilities sector, which has the lowest TTM Economic Earnings.

Sample Sector Analysis[4]: Utilities

Figure 1 shows Economic Earnings for the Utilities sector fell from -$43.8 billion in 2Q23 to -$49.1 billion in 3Q23, while GAAP earnings rose from $49.0 billion to $49.5 billion over the same time.

Figure 1: Utilities Economic Earnings Vs. GAAP: 4Q98 – 3Q23

Sources: New Constructs, LLC and company filings. 
Our economic earnings analysis is based on aggregated TTM data for the sector constituents in each measurement period.
The November 14, 2023 period incorporates the financial data from calendar 3Q23 10-Qs, as this is the earliest date for which all of the calendar 3Q23 10-Qs for the NC 2000 constituents were available.

This article was originally published on December 7, 2023.

Disclosure: David Trainer, Kyle Guske II, Italo Mendonça, and Hakan Salt receive no compensation to write about any specific stock, style, or theme.

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[1] The NC 2000 consists of the largest 2000 U.S. companies by market cap in our coverage. Constituents are updated on a quarterly basis (March 31, June 30, September 30, and December 31). We exclude companies that report under IFRS and non-U.S. ADR companies.

[2] This report is based on the latest audited financial data available, which is the 3Q23 10-Q in most cases. Price data as of 11/14/23. QoQ  analysis is based on the change since last quarter’s report.

[3] Our research utilizes our more of reliable fundamental data, as proven in Core Earnings: New Data & Evidence, written by professors at Harvard Business School (HBS) & MIT Sloan and published in The Journal of Financial Economics.

[4] The full version of this report provides analysis for all eleven sectors.

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