The third quarter of 2024 provided another season of earnings growth for the companies included in the S&P 500 index, according to data firm FactSet.
The companies posted the fifth consecutive quarter of positive earnings, a trend that analysts expect to continue for the rest of the calendar year 2024 and accelerate in 2025.
“Of these companies, 75% have reported actual [earnings per share (EPS)] above estimates, which is below the 5-year average of 77% but equal to the 10-year average of 75%. In aggregate, companies are reporting earnings that are 4.3% above estimates, which is below the 5-year average of 8.5% and the 10-year average of 6.8%. Historical averages reflect actual results from all 500 companies, not the actual results from the percentage of companies that have reported through this point in time.”
Most of the positive EPS surprises came from companies in the health care sector, which has been riding a favorable trend that has boosted demand for health care services. These earnings were partially offset by negative EPS reported by companies in the utilities sector that have been hurt by persistently high long-term interest rates.
Financials is another sector reporting positive earnings, resulting from higher fees, better trade income, and low write-offs for bad loans.
A third sector reporting positive earnings surprises is the consumer discretionary sector. It has been benefiting from the strength of the U.S. economy and consumer spending resilience.
Another sector with negative surprises was information technology. Expectations are usually high in this sector because of artificial intelligence (AI) hype.
In addition to reporting positive earnings growth for the third quarter, S&P 500 index companies have reported positive revenue growth, although it was below recent trends.
“In terms of revenues, 60% of S&P 500 companies have reported actual revenues above estimates, which is below the 5-year average of 69% and below the 10-year average of 64%,” Butters wrote.
“In aggregate, companies are reporting revenues that are 1.2 percent above the estimates, which is below the 5-year average of 2.0 percent and below the 10-year average of 1.4 percent. Again, historical averages reflect actual results from all 500 companies, not the percentage of companies reported through this time.”
Sidharth Ramsinghaney, director of strategy and operations with cloud communications company Twilio, provided insight into the state of the broader U.S. corporate earnings cycle in recent quarters, highlighting the large tech companies that account for a big chunk of the S&P 500.
“The cloud and A.I. revolution is in full swing, and the ‘hyperscalers’ like Microsoft, Google, and Amazon are proving their dominance,” he told The Epoch Times in an email.
Ramsinghaney said he sees these companies demonstrating the power of combining communications, data, and AI to deliver personalized consumer experiences at scale. At the same time, he said he expects that there will be plenty of challenges ahead for the sector, as the rolling out of AI applications requires a great deal of capital expenditure.
“Companies like Meta are having to balance increased investment in the metaverse and A.I. with near-term profitability,” he said. “Investors are looking for that delicate balance between innovation and financial discipline.”
In addition, the U.S. giants will be facing global macroeconomic headwinds, such as supply chain issues and inflation, according to Ramsinghaney.
“Ultimately, the companies that can best leverage the cloud, A.I., and their data assets to deliver exceptional customer experiences will be the long-term winners,” he stated.
Still, equity analysts are optimistic about the rest of 2024 and 2025. According to FactSet, they expect annual earnings growth rates of 12.2 percent, 12.7 percent, and 11.9 percent for the fourth quarter of 2024, the first quarter of 2025, and the second quarter of 2025, respectively.
For calendar year 2024, analysts call for annual earnings growth of 9.4 percent. For calendar year 2025, analysts forecast growth of 14.8 percent.
