Q3 Results and the Implications on the Broad Equity Indices
Even though the results of M7 cannot be considered bad, the market reaction was rather mixed, with TSLA, GOOGL and AMZN stock prices jumping immediately after their respective results release, while AAPL, MSFT and META dipped.
Thus, we might need to change the way we see Mag 7 stocks as major driver for investment return for S&P500.
S&P500 Results So Far...
As of November 6th, 399 companies from S&P have reported results with revenues up 5.2% and earnings up with 6.9%. 61% of the companies beat revenue estimates and 74% beat the EPS estimates.
So far, the % of earnings and revenue surprises is lower than the 5-year average and the % of companies that report surprises is also below the 5-year average.
Also, more companies on average are reporting negative guidance.
2 scenarios:
1)Excluding Mega 7: Mega 7 companies are on track to account for 23.1% of all S&P 500 earnings in Q3. If we exclude Mag 7, the Q3 earnings for the remaining S&P 500 index companies would be up only +1.1%.
2)Excluding Energy: Also, energy was the main drag on the index earnings. If we exclude energy, the earnings growth would be around +9.1% (decline of -24.2% for Energy).
An interesting fact is, as of date, the market seems to reward positive earnings surprises reported by S&P 500 companies for Q3 less than average and punishing negative earnings surprises reported by S&P 500 companies for Q3 more than average. This implies that investors either have very high expectations or just feel anxious about the rich valuations.
Sectors
Nine sectors are reporting growth in revenues, led by the Information Technology, Health Care, and Communication Services sectors. On the other hand, two sectors are reporting a year-over-year decline in revenues, led by the Energy sector.
Further to this, we can also see how the companies from Information Technology, Communication services and health care were most likely to beat the revenue and earnings estimates the most.
Some companies that reported spurring earnings
Expectations for 2024Q4
For the final quarter of the fiscal year, Information technology and Commercial services are still expected to post high growth in terms of revenue and EPS. However, it is the financial companies that are expected to grow their earnings the most with nearly 40% YoY.
Also, earnings estimates for Q4 have been revised several times since the beginning of of September.
At the sector level, nine sectors witnessed a decrease in their bottom-up EPS estimate for Q4 2024 from September 30 to October 31, led by the Energy (-8.5%), Industrials (-4.9%), and Health Care (-4.8%) sectors. On the other hand, two sectors recorded an increase in their bottom-up EPS estimates for Q4 2024 during this period: Communication Services (+3.5%) and Financials (+0.5%).
For the year of 2025, the situation with the estimates doesn’t seem more different from previous years, where communication services and information technology will continue to post the highest growth in revenue and earnings among the industries in S&P500.
