The Upward Climb

The Q4 earnings season has revealed a picture of steady resilience, with certain sectors experiencing a notable ramp up in growth momentum. While corporate profitability falls short of greatness, there is an unexpected sense of relief among market participants. The fear of an imminent earnings downturn has been lurking, but these results have had a calming effect on those concerns.

Having seen results from roughly two-thirds of S&P 500 members, the Q4 earnings and revenue growth pace indicates an uptick from recent quarters. The absolute level of growth may not seem overwhelming, but this positive trajectory is significant and a promising sign for the future. For the 338 S&P 500 members that disclosed results, total earnings and revenues have increased by +5.5% and +3.7% from the same period last year. Additionally, 80.5% of companies have surpassed EPS (Earnings Per Share) estimates, while 65% have exceeded revenue estimates. These figures tell an instructive story when we place them in a historical context.

Image Source: Zacks Investment Research

The Margin Momentum

The net margins landscape has shown positive strides, with the year-over-year change turning favorable in the 2023 Q3 after several consecutive quarters in negative territory. This rebound in margins is poised to be a pivotal driver of upcoming earnings growth. Specific sectors like Tech, Consumer Discretionary, Retail, and Industrial Products have exhibited substantial gains, while others, such as Medical, Autos, Energy, and Transportation, have seen declines.

Image Source: Zacks Investment Research

The Tech Resurgence

The Tech sector has firmly established itself in a growth phase, with expectations pointing towards a continued upward trajectory. This is further evidenced by the strong Q4 results among the sector’s companies, and the anticipation of sustained growth moving forward. Given its substantial contribution to the S&P 500 index’s overall earnings, the Tech sector’s performance significantly impacts the aggregate picture, both positively and negatively.

Image Source: Zacks Investment Research

The Magnificent 7

The so-called “Magnificent 7” companies, including Apple, Amazon, Alphabet, Microsoft, Meta, Nvidia, and Tesla, have collectively exhibited robust growth. These companies, each an exemplar of technological innovation, are projected to play a vital role in 2024, both in S&P 500 earnings and market capitalization. In fact, the brunt of the S&P 500’s earnings growth for Q4 derives from the Mag 7.

Image Source: Zacks Investment Research

The Revision Riddle

The trend of earnings revisions has recently stabilized after appearing to take a downturn at the commencement of Q4 2023. While estimates for 2024 Q1 and full-year 2024 have experienced some adjustments, they generally balance out the negative and positive revisions, providing a more balanced outlook.

Image Source: Zacks Investment Research