The earnings season is approaching. Next week, US major banks like Citigroup and JPMorgan, along with TSMC, will kick off the Q4 earnings season.
In the financial landscape, the S&P 500's performance in Q4 2024 has been a focal point of interest. The earnings scenario for this period is a complex tapestry of growth, revisions, and guidance, all of which have significant implications for the broader market. The data presented in this report is sourced from FactSet.
Earnings Growth
The estimated year-over-year earnings growth rate for the S&P 500 in Q4 2024 stands at 11.9%. This figure, if realized, would mark the highest growth since Q4 2021. However, it is important to note that it has declined from the 14.5% estimated on September 30. Seven sectors are projected to experience growth, with six of them anticipated to report double-digit increases. The Financials sector is expected to lead the pack with an impressive 39.5% growth rate. This growth is largely driven by the Banks industry, which benefits from favorable comparisons to weaker earnings in the previous year due to specific charges included in their GAAP EPS. In contrast, the Energy sector is set to decline by 24.6%. This decline can be attributed to lower year-over-year oil prices, as the average price of oil in Q4 2024 ($70.32) was 10% below that of Q4 2023 ($78.53).
Earnings Revisions
Analysts have been actively revising their earnings estimates for Q4 2024. The bottom-up EPS estimate witnessed a 2.7% decrease from September 30 to December 31. This reduction is smaller than the 5-year average of 3.4%. At the sector level, the Energy and Materials sectors were hit the hardest. The Energy sector saw a 14.1% decrease in its bottom-up EPS estimate, while the Materials sector experienced a 12.5% decline. On the other hand, the Communication Services sector stood out with a 4.1% increase in its estimate during this period.
Earnings Guidance
When it comes to earnings guidance for Q4 2024, 71 S&P 500 companies issued negative EPS guidance. This number is above both the 5-year and 10-year averages. In contrast, only 35 companies provided positive guidance, which is below their respective historical averages. Among the sectors, the Information Technology, Industrials, and Consumer Discretionary sectors had the highest number of companies issuing negative EPS guidance.
Valuation and Future Outlook
The forward 12-month P/E ratio for the S&P 500 currently stands at 21.4, which is above the 5-year average of 19.7. Looking ahead, analysts project earnings growth of 15% for CY 2025. This growth is expected to vary across different quarters. For instance, Q1 2025 is projected to have an earnings growth of 11.9%, while Q2 2025 is estimated at 11.6%. In terms of revenue growth, the market anticipates continued expansion, although the rates are below historical averages in some cases. For Q4 2024, the estimated year-over-year revenue growth rate is 4.6%, which is below the 5-year average of 6.9% and the 10-year average of 5.2%.
Overall, while the S&P 500 shows promising signs of growth in Q4 2024, the downward revisions and negative guidance in certain sectors serve as a cautionary note. Investors will be closely monitoring the upcoming earnings reports to assess the true health of the market and the accuracy of these projections.
It is crucial to note that the information provided in this report is for informational purposes only and does not constitute investment advice. The market is subject to various uncertainties and fluctuations, and investors should conduct their own research and consult with financial advisors before making any investment decisions.
