Q1 Earnings Season Came in Strong. Why is No One Talking About It?

Mitch breaks down the Q1 earnings season, and looks at some of the positive—and better-than-expected—results. [Mitch on the Markets] The Strong Q1 Earnings Season That No One is Talking About As I write, over 80% of S&P 500 companies have reported Q1 2024 earnings, and the results have been not only positive, but also largely better-than-expected. The percentage of S&P 500 companies reporting positive earnings surprises in Q1 (and the average size of their earnings beats) have both been running above 10-year averages. All told, S&P 500 companies are reporting their highest year-over-year earnings growth rate since Q2 2022. But no one is talking about it. This is actually a pattern. Over my long tenure covering markets and earnings seasons, I’ve noted that the financial media tends to focus on quarterly results from buzzy companies (think Apple, Tesla and Disney), while largely eschewing commentary on aggregate results or sector trends. This may make sense from a media perspective, but if you’re an equity market investor managing a diversified portfolio, a much broader look at earnings data every quarter is essential.1 As I write, 400 of the 500 S&P 500 companies have reported earnings, and so far, we’ve seen total earnings up +4.4% year-over-year on +4.2% higher revenues. A solid 78.3% of companies have exceeded earnings expectations, with 61% beating on revenues. As seen on the chart below, the earnings rebound that started late last year looks like it is continuing apace. Q1 Earnings Growth Rates Compared [motm_charts_05092024_1]( Source: Zack Investment Research 2 Q1 Revenue Growth Rates Compared [motm_charts_05092024_2]( Source: Zack Investment Research 2 --------------------------------------------------------------- [Making the Most of Today’s Market]( Americans are largely negative on the economy. According to a recent poll, 56% of respondents said the U.S. economy got worse over the past two years. But we know from hard data that the exact opposite occurred. This disconnect between negative sentiment and positive fundamentals might be creating a unique opportunity for investors. To learn more about this opportunity and why Americans are sour on a strong economy, I recommend downloading our [May 2024 Market Strategy Report 3](. It covers topics, such as: - Americans Think the Economy is Lousy. Is It? - Update on Inflation & the Fed - The Market’s Fed Exuberance - Bottom Line for Investors If you have $500,000 or more to invest, click on the link below to get our free report today! [Download our May 2024 Market Strategy Report 3]( --------------------------------------------------------------- The big headline in the first quarter was that inflation data came in stickier-than-expected, with GDP decelerating from the growth posted in the second half of last year. In my column last week, I noted that the combined forces of stubborn inflation and slowing economic growth had even resulted in some “stagflation” chatter. A cautious or even outright bearish outlook on the economy might have been confirmed if companies and analysts were seen lowering earnings-per-share (EPS) estimates for the second quarter. But the opposite happened. Bottom-up EPS estimates for Q2 rose by 0.7% during the month of April, which is not what we expect to see in the first month of the new quarter. In fact, over the past 20 years (40 quarters), bottom-up EPS estimates have fallen an average of -1.8% in the first month of a new quarter. Instead of hedging, analysts grew more bullish. A fair assessment of Q1 2024 earnings, however, would take into account the impact made by the Technology sector and specifically by the ‘Magnificent 7’ stocks. These companies currently account for nearly 30% of the S&P 500’s market cap and just over 20% of the index’s total earnings. And they continue to be a strong force pushing overall earnings results higher. The Technology sector is expected to generate +28.2% year-over-year earnings growth on +8.9% higher revenues. Technology Sector Quarterly Growth Rates [MOTM_05042024_graph1]( Source: Zack Investment Research Zacks Investment Research notes that without the Technology sector, aggregate S&P 500 earnings would be down -2.2% year-over-year, which may give the impression that Technology is the only sector performing well. But that’s not the case—eight of eleven sectors reported earnings growth in Q1 2024, and it’s been Energy once again that is serving as an anchor to the overall earnings picture. When excluding the impact of Energy, S&P 500 earnings would be up a stout +8.3% year-over-year. Bottom Line for Investors When framing an investment outlook based on the earnings picture, my overall view remains positive following this Q1 earnings season. Looking ahead to when all 500 companies have reported, we expect earnings to be up +5.3% year-over-year on +4.3% higher revenues, which would follow the +6.8% earnings growth on +3.9% revenue gains in the preceding period. For 2024 as a whole, the total S&P 500 earnings are expected to be up +8.9% on +1.7% revenue growth. Quarterly Earnings and Revenue Growth Rate (YoY) [motm_charts_05092024_4]( Source: Zack Investment Research Stock prices reflect forward expectations of earnings and free cash flow, as well as expectations about economic growth, inflation, and interest rates. But I would argue that earnings matter above all else. The fact that aggregate earnings do not get much media coverage is, in my view, a reminder to investors that you have to seek that data out on your own. To stay on top of all the latest trends taking place in the equity markets, I’m offering our free [May 2024 Market Strategy Report 4]( which this month covers the following topics: - Americans Think the Economy is Lousy. Is It? - Update on Inflation & the Fed - The Market’s Fed Exuberance - Bottom Line for Investors If you have $500,000 or more to invest, click on the link below to get our free guide today! [Claim Your Free Report]( About Zacks Investment Management Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. At Zacks Investment Management, we work with clients with $500,000 or more to invest, and we use this independent research, 35+ years of investment management experience, and tools we’ve developed to design customized investment portfolios based on each client’s individual needs. The end result is investment management that is research driven, results oriented and client focused. [Mitch on the Markets] Talk to a Zacks Wealth Advisor today. [Schedule Your Chat]( [facebook]( [linkedin]( [twitter]( © Zacks Investment Management | [Privacy Policy]( 1[Zacks.com. May 3, 2024.]( 2[Zacks.com. May 3, 2024.]( 3 Zacks Investment Management reserves the right to amend the terms or rescind the free Market Strategy Report offer at any time and for any reason at its discretion. 4 Zacks Investment Management reserves the right to amend the terms or rescind the free Market Strategy Report offer at any time and for any reason at its discretion. 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