LIVE MARKETS-Q4 earnings drumroll: BofA says tech's in charge

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Q4 EARNINGS DRUMROLL: BOFA SAYS TECH'S IN CHARGE

With fourth quarter earnings season kicking off this week, Bank of America equity and quant strategist Savita Subramanian took a look at what to expect.

Subramanian pointed to a consensus expectation for 7% year-over-year growth for the quarter vs. 13% in the third quarter with growth mostly coming from technology and Magnificent 7 companies. But the strategist said that she expects results to come in above consensus for an 11% growth rate with risks to the upside.

The strategist says that there is a similar setup heading into 4Q earnings compared with the lead-in to 3Q, in the form of a rare quarter with no downward revisions to S&P 500 EPS in the three months leading up to reporting season. And she says corporate guidance is at the most optimistic levels since 2021, with 1.9 times more above than below-consensus EPS guides over the last three months.

But she notes that 4Q's 0.5% revision higher was entirely due to technology and the Magnificent 7 group of stocks as the rest of 4Q growth was cut by 2%.

"Tech + Mag 7 are forecast to grow 20% YoY (as in 3Q), driving >90% of S&P growth," according to Subramanian.

But excluding technology, earnings are slated to decelerate from 9% to just 1% YoY, she says.

And hyperscaler capex "should still dominate headlines" with consensus modeling a deceleration from about 70% YoY in 2025 to about 30% in 2026.

While pointing to consensus forecasts for 15% EPS growth in 2026, Subramanian said that strong EPS doesn't necessarily mean strong price returns, as she notes that "boom earnings years have seen lower price returns than normal" as equity investors anticipate rather than react.

So roll on the early reporters, with banks as usual starting the season with JPMorgan cutting the opening ribbon on Tuesday with investment banking revenue expected to feature prominently.

(Sinéad Carew)

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