Q1 2024 Earnings Preview:
Profit Progress...

Below is a transcript of this week’s video.

Hi, this is Jason Pride, Chief of Investment Strategy and Research at Glenmede.

With another quarter now in the books, corporate earnings reporting season has begun. After two back-to-back quarters of growth in the back half of 2023, the average company is expected to deliver another quarter of growth, albeit modest. With only 18 companies in the S&P 500 reporting so far, the blended earnings growth rate, which combines results reported by companies with consensus analyst estimates for firms that have yet to report, currently sits at +2.8%.

Estimates on the whole declined to this level from their initial near-6% growth at the start of the quarter. Such a lower bar makes earnings surprises easier to come by but perhaps less impressive or meaningful to investors.

While the overall S&P 500’s earnings growth for Q1 2024 is expected to be modest, the swings in the earnings at the sector level is anything but that. On the positive side, Utilities are currently expected to have an unusually strong quarter with near-25% gains from low levels, followed closely by unsurprising strength in both technology and communications, each up ~20%. In contrast, Materials and Energy are expected to deliver -27% and -24%, respectively.

While S&P 500 EPS estimates have been revised down for Q1 2024, estimates for the coming year have remained relative stable, only dropping 0.4% so far. Current bottom-up consensus estimates for the S&P 500 stand at $243 for 2024, representing year-over-year growth of over 10%.

However, in order to hold full-year estimates constant as Q1 estimates were revised downward, analyst have built in higher and higher expectations for the back half of the year, with Q4 growth now estimated to be over 17%. Time will tell if this back-end loading of profits in 2024 proves realistic.

So to summarize, earnings season is expected to show another quarter of growth based on a bottom-up consensus of company analysts. Growth during the quarter, however, is modest and quite divergent across sectors with double-digit gains and losses. Full-year bottom-up estimates of double-digit gains in 2024 and 2025 appear quite strong, but with a modest Q1, those 2024 expectations are growingly dependent on a strong Q4 report. Strategists’ estimates for positive but modest growth for 2024 appears a more reasonable expectation that better reflects ongoing headwinds. Modest earnings growth should support modest returns for equities, justifying an allocation that does not stray far from that of a longer-term investment policy.

Thanks for listening! And please don’t hesitate to reach out with any questions.