S&P 500 Q3 2024 earnings outlook: growth continues amid challenges
The S&P 500 is poised for its fifth consecutive quarter of earnings growth, with a projected 4.6% increase in Q3 2024. However, downward revisions and sector-specific challenges paint a complex picture for investors.
Earnings growth momentum continues
The S&P 500 is expected to maintain its positive earnings trajectory in the third quarter (Q3) of 2024. Analysts project a 4.6% year-over-year (YoY) increase in earnings, marking the fifth consecutive quarter of growth. This trend underscores the resilience of large-cap US companies in the face of ongoing economic uncertainties.
Revisions and guidance paint a mixed picture
Despite the overall positive outlook, some caution is warranted. The Q3 2024 earnings estimate from FactSet has seen a 3.8% downward revision since June 30, with eight sectors experiencing lowered projections. The Energy sector has faced the most significant downgrade.
Corporate guidance for the quarter reflects this uncertainty:
- 60 S&P 500 companies have issued negative EPS guidance
- 50 S&P 500 companies have provided positive EPS outlooks.
Sector performance: winners and losers
The earnings landscape for Q3 2024 reveals clear sector divergences:
- Top performers: Information Technology, Health Care, and Communication Services are expected to lead with the highest year-over-year earnings growth
- Challenged sector: the Energy sector is anticipated to report the largest earnings decline compared to the previous year.
Revenue growth remains positive
While earnings growth is crucial, revenue performance provides additional insight into corporate health. The S&P 500 is projected to deliver 4.8% YoY revenue growth in Q3 2024, with ten sectors expected to contribute positively to this increase.
Profit margins hold steady
The estimated net profit margin for the S&P 500 in Q3 2024 stands at 12.2%. This figure matches both the previous quarter and the year-ago period, suggesting stable cost management across the index.
Looking ahead: Analyst optimism for future growth
Analysts maintain a bullish outlook for the coming years:
- 2024: 10% projected earnings growth
- 2025: 15.1% projected earnings growth.
Valuation considerations
The forward 12-month P/E ratio for the S&P 500 currently sits at 21.6. This valuation metric exceeds both the 5-year average (19.5) and the 10-year average (18.0), indicating that the market may be pricing in future growth expectations.
The bottom line
Analysts project a 9.4% increase in the S&P 500 price over the next 12 months. While this forecast suggests continued optimism, investors should remain mindful of the complex factors influencing corporate earnings and market performance in the current economic environment.
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