US Q2, 2024 Earnings Season Preview (+ Bonus)

Next week brings us the most exciting part of the quarter - the start of earnings season. As usual, we have a few earnings during the week but the season starts with the banks on Friday.

We’ve been talking about being out of an earnings recession and this quarter is expected to bring an earnings boom!

In 2023 earnings growth was 1%. 2024 and 2025 earnings growth is expected at double digits with 11.3% in 2024 and 14.4% in 2025

For Q2, 2024, earnings are expected to see a boost with EPS YoY growth estimated at 8.8%, with the SPX ex-Mag 6 at 5% (first positive growth).

The bar is set relatively high this time when estimates had been low single digits for the last 3 quarters. EPS beats is what drove a lot of the price action over the last few quarters, and misses were punished hard at an average of -3%. We may see a more balanced price reaction this time.

Estimate Revisions have been negligible

What’s unusual is that there has been little change to EPS estimates this time – on Mar 31 the estimate was 9.1% (the usual decline after Q1 results is about 3%).

The same is true when we look at Revenue estimates. There’s hardly been a change.

So basically, the market is quite “bullish” on earnings and confident that companies are set to improve.

No surprise the leaders are still info tech and comm services, while laggards are materials, industrials, and staples.

While the overall Net Profit margin for the S&P 500 is expected to remain the same as a year ago, significant positive changes are expected in Info Tech, Utilities, and Communication Services. Meanwhile, negative changes are expected in Energy, Materials, and Health Care.

Handoff

We’re seeing a bit of the handoff as well. Even though EPS from the Mag 6 (ex-Tesla) is expected at 30% YoY, and Revenue growth is expected to slow.

We’re also expected to see the handoff between the Mag 6 and the rest of Tech.

And finally, here’s the calendar… with the third week the busiest week of earnings season.

Bottom Line:

• If the 8.8% EPS YoY Growth is achieved, that could definitely keep this market rally going. Seeing as how tech is leading the EPS estimate basket, the tech leadership could also continue.
• The 5% EPS YoY Growth in the rest of the SPX also means that we could see the market broaden out.

MacroVisor's Q3, 2024 Outlook

Here's a YouTube link to our Q3, 2024 Outlook from MacroVisor:

https://youtu.be/6Ueg0e63Zv0?si=QuN94CYigHBfKWrI

Closing Thoughts - Bumpy Landing

The US Unemployment Rate is now 4.1% and while there were 206k jobs added in June according to the Nonfarm Payroll report, prior months were revised lower. Average Hourly Earnings came out in line, which was against lower estimates. In conclusion: The jobs market is certainly cooling, probably a tad more than expected.

While the market’s initial reaction was muted, the headlines read: “sooner Fed cuts expected”. So there you have it, bad news is, once again, good news.

Then again, here’s something to think about. With unemployment increasing, there may be a point where the Fed will have to cut in September, and that may not be the best situation given the way inflation has been remaining sticky.

On the other hand, if the Fed decides to hold off on cuts, unemployment may increase drastically, and US growth may slow enough to push the economy to the brink of a recession. Whether it topples over into a recession remains to be seen. But one thing’s for sure, it’s not going to be as smooth a landing as everyone thought.

Reach out to us for help with your investment strategy or email us at [email protected]

You can sign up directly to receive all our content my email at www.macrovisor.com

None of the above is investment advice. Full Disclaimer: https://www.macrovisor.com/c/disclaimer