During April and May, analysts raised EPS estimates for the second quarter, which is unusual, wrote John Butters, FactSet’s senior earnings analyst. “In a typical quarter, analysts usually reduce earnings estimates during the first two months,” Butters observed. Over the past five years, the decrease has averaged 2.8 percentage points, he found.
The latest 2Q 2024 estimated increase, of 8.9%, is an improvement on the first quarter’s 5.9%, which was very healthy. Butters stated that, for the first period: “On a year-over-year basis, the S&P 500 is reporting its highest earnings growth rate since Q1 2022,” in the bounce back from the pandemic slump.
This all comes against a backdrop of increasing, if tepid, optimism about U.S. economic growth. Indeed, analysts are more optimistic than economists. After gross domestic product expanded 3.1% in 2023, the Conference Board, an association of global business leaders, expected GDP growth would slow to below 1% this year.
In its most recent report, the research group upped that to around 2% due to continued strong consumer spending, although the group cautioned that there were signs this could ebb up ahead.
At least, companies have shed their previous sense of gloom and doom. FactSet reported that the number of companies citing the word “recession” in their earnings comments has plunged.
By FactSet’s count, on S&P 500 company earnings conferences for the first quarter, only 29 used the term, down from the five-year average of 63, and 47 mentions for 4Q2023. Over the past five years, the peak recession mentions were in 2Q 2022 (235), when the Federal Reserve began raising interest rates and fears of an impending downturn as a result.
A lot of the current upbeat outlook is centered on the outperformance of tech, specifically the biggest companies. In the first quarter, online retailer Amazon tripled its EPS from the year-prior quarter, Facebook parent Meta Platforms more than doubled its results and, most stunningly, chipmaker Nvidia’s EPS catapulted 629%—thanks to its products’ role in the artificial intelligence buildout.
These stocks were part of the Magnificent Seven, which in recent years have accounted for a third of the index’s total earnings. Amid troubles at Tesla, which faces stiff competition from Chinese electric vehicles, that august bunch now is known as the Super Six, with Tesla excluded. (The automaker’s EPS dropped by more than a half from the year-earlier quarter.)
In sector terms, communications services (Alphabet, Meta) led the pack in the first quarter, with a 33.8% year-over-year advance. The laggard was energy. Giants Exxon Mobil and Chevron saw earnings slip from the year before amid lower refining margins and reduced natural gas prices.
Related Stories:
Magnificent Seven’s Earnings Have Peaked, BofA Says
Solid 4Q Earnings Tee Up Expectations for Even Better Days Ahead
RIP Earnings Recession: 3Q Reports Turn Positive
Tags: Amazon, Chevron, Earnings, Exxon, FactSet, John Butters, Magnificent Seven, Meta, Recession