Expectations for the 2Q24 earnings season

Corporate earnings season for the second quarter of the year will begin in two weeks, with several large banks such as JP Morgan, Citi and Wells Fargo reporting on July 12. Mega-cap technology companies will begin reporting later in the month, most notably NVDA, which will report through August 23.

In this context, the consensus estimates that earnings per share (EPS) of the companies comprising the S&P 500 could grow by 9% annually, which would represent the strongest growth since the 4Q21. Earnings are expected to decline only in the Materials (-11% annually) and Industrials (-1%) sectors. In contrast, the Technology (+17%) and Communication Services (+17%) sectors are anticipated to show the fastest growth compared to other sectors, led by mega-cap tech stocks. Overall, the top six S&P 500 stocks (AMZN, AAPL, GOOGL, META, MSFT and NVDA) are projected to grow their Q2 EPS by 30% annually, while the other 494 companies will grow by 5%.

Another relevant fact is that revisions to consensus estimates have been unusually resilient recently. Typically, quarterly consensus EPS estimates are usually reduced by 7% during the 6 months leading up to the start of earnings season. However, over the past six months, the 2Q24 EPS consensus estimate has barely declined by 1%. Excluding mega-cap tech companies, analysts have cut EPS estimates by 3%.

On the other hand, analysts are forecasting sales growth of 4% annually for the period. With this combination of factors, the companies’ net income margins, excluding the energy sector, are expected to stand at 11.7%, which represents an increase of 58 basis points (bps) annually, albeit only a 14 bps increase quarter-over-quarter (2Q24 vs. 1Q24). The recent slowdown in labor and material costs suggests that this margin forecast could be achievable.

With all of the above, EPS for S&P 500 companies is expected to grow 9% for the full year compared to 2023, with sales growth of 5%. Undoubtedly, the quarterly reporting season that is about to begin will be a near-term catalyst on investors’ radar, given the strong performance the S&P 500 has experienced so far this year.

Consensus forecast for the 2Q24 earnings season (annual growth)

EPS means earnings per share

SPS means sales per share

Source: Goldman Sachs – Facset

Consensus estimate for the 2Q24 EPS growth of +9% is the highest since 2021

Source: Goldman Sachs – Facset

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