S&P 500 Earnings Growth Could Double in the 4th Quarter of 2024

Traders work on the floor of the New York Stock Exchange during morning trading on Nov. 7, 2024. Michael Santiago/Getty Images

Equity analysts are optimistic about S&P earnings for the rest of 2024, saying they expect earnings growth to shift into high gear, from single digits in the third quarter to double digits in the fourth quarter.

That’s according to FactSet, which monitors closely the financial performance of S&P 500 companies.

The world’s most closely followed equity index reported an annual earnings growth of 5.8 percent in the third quarter of 2024. But analysts predict better days ahead, with estimated earnings expected to grow by more than double that rate, at 12 percent, in the fourth quarter of 2024. In addition, they see earnings growth accelerating in 2025, from low teens at the beginning of the year to high teens at the end.

“If 12.0 percent is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q4 2021 (31.4 percent),” John Butters, vice president and senior earnings analyst at FactSet, wrote in a blog.

“It is interesting to note that analysts believe double-digit earnings growth will continue for the S&P 500 through all four quarters of 2025. The estimated earnings growth rates for Q1 2025 through Q4 2025 are 12.7%, 12.1%, 15.3%, and 17.0%.”

Most of the earnings growth is expected to be concentrated in six sectors: financials (38.9 percent), communication services (20.7 percent), information technology (13.9 percent), utilities (12.9 percent), health care (12.6 percent), and consumer discretionary (12.5 percent).

Within industries, banks will be the most significant contributors to the S&P 500 earnings growth, followed by semiconductors and semiconductor equipment, pharmaceuticals, interactive media and services, and broadline retail.

For some industries, such as banking, Butters attributes boosting analysts’ earnings expectations for the fourth quarter to easier comparisons from a year earlier. “A large number of companies in this industry are benefitting from easy comparisons to weaker (GAAP) earnings reported in the year-ago quarter due to significant charges related to FDIC special assessments and other items that were included in their GAAP EPS,” he said.

GAAP EPS is a standard measure of profitability that shows how much profit the company earned for each share of stock, calculated under generally accepted accounting principles (GAAP), making it easy to compare different companies’ performance.

He sees a similar situation for the pharmaceuticals industry, where several companies benefit from easy comparisons to weaker earnings reported in the year-ago quarter because of various charges.

For other industries, such as semiconductors and semiconductor equipment, and media and services, Butters sees tech leaders such as Nvidia, Broadcom, Alphabet, and Meta continuing to deliver solid financial results.

Alejandro Zambrano, chief market strategist at ThinkMarkets, provides further insights into the factors driving analysts’ bullish forecasts for the fourth quarter.

“The anticipated doubling of the S&P 500’s earnings growth rate in Q4 2024 is primarily attributed to base effects, notably within the banking sector,” he told The Epoch Times via email.

“Banks, previously impacted by FDIC charges, are now benefiting from higher interest rates, boosting their earnings. Additionally, companies like NVIDIA in the semiconductor industry are experiencing significant demand for AI and cloud computing chips, driving robust growth. In their Q3 2024 earnings report, the firm reported a 94% year-over-year revenue increase to $35.1 billion.”

David Materazzi, CEO of automated trading platform Galileo FX, sees several positive developments for equity markets as fiscal 2024 ends.

“Tech is leading thanks to AI and semiconductors. These industries are pushing innovation, meeting demand, and expanding their reach,” he told The Epoch Times.

“Consumer spending is steady because wages are higher, and unemployment remains low. The economy shows strength as companies adapt to challenges. Businesses have focused on reducing costs, which helps increase profits.”

Jason Hishmeh, an investor, entrepreneur, and technical leader, also sees a bright path ahead for S&P 500 companies.

“It becomes evident that the anticipated earnings growth in Q4 is not merely a coincidence,” he told The Epoch Times in an email.

“It is an outcome of companies, particularly those operating in the technology, consumer goods, and energy industries, intensifying their focus on innovation and productivity.”

He pointed to the energy and health care sectors, which are expected to contribute significantly to fourth-quarter earnings growth.

“In the energy field, the shift toward renewable energy sources generates novel opportunities alongside the conventional oil and gas industries,” he said.

“In the meantime, the health care sector, particularly pharmaceuticals and biotechnology, is consistently gaining advantages from robust product pipelines and increasing worldwide need for medical advancements.

“Whether you are a startup or a Fortune 500 company, the essential factor for achieving sustained success lies in maintaining adaptability and consistently striving for innovation.”