The fourth quarter of 2024 is revealing a robust earnings season, with companies exceeding Wall Street expectations. A deeper dive into the data reveals key drivers and emerging concerns.
According to FactSet data, as of Friday, over 77% of S&P 500 companies reporting have surpassed earnings per share estimates. This performance aligns with the five-year average and slightly exceeds the ten-year average, indicating a healthy earnings environment. The blended average for year-over-year earnings growth is exceeding 16%, a significant jump from the nearly 12% observed in Q3 2024. If this trend continues, Q4 2024 could mark the strongest earnings performance since the final quarter of 2021.
Chart showing S&P 500 earnings growth.
While earnings are flourishing, revenue growth is showing more moderate results. FactSet reports that 63% of companies have beaten revenue estimates, falling short of both the five and ten-year averages. This divergence between earnings and revenue performance warrants further examination.
LPL Financial attributes the strong earnings performance to several key factors: robust economic growth, substantial investments in artificial intelligence (AI), associated productivity gains leading to improved margins, and deregulation, particularly within the financial and energy sectors. These positive influences are partially offset by tariffs, although the full extent of the impact remains uncertain.
A notable trend emerging from earnings conference calls is growing uncertainty among executives regarding the current administration’s trade policies and their potential consequences. FactSet’s analysis indicates that the frequency of companies mentioning tariffs is approaching a ten-year high, signaling a significant concern for businesses.
This week promises further insights into the earnings landscape with reports expected from major players like Coca-Cola (KO), Shopify (SHOP), Cisco (CSCO), and Airbnb (ABNB). These reports will provide valuable context for understanding the broader economic trends and potential challenges ahead. McDonald’s (MCD) already reported strong earnings earlier this week.
In conclusion, Q4 2024 is demonstrating robust earnings growth driven by factors such as AI investment and deregulation. However, concerns surrounding trade policies and the potential impact of tariffs are creating uncertainty for businesses. The upcoming earnings reports will be crucial in assessing the overall health of the market and identifying potential risks and opportunities for investors.
