Rising Stars: Which S&P 500 Sectors Are Leading the Earnings Surge in 2024?

TipsForTraders | May 13, 2024

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Recent data and analysis of the S&P 500 earnings have indicated a promising trend in growth rates across various sectors for 2024, reflecting the resilience and potential of the U.S. economy. Notably, after a low on April 12, 2024, the projected earnings per share (EPS) growth for the first quarter has shown a steady increase. From an initial +2.7% on April 12, it has risen to +7.4% by May 10, indicating a potential to reach the 10% mark seen in the previous quarter’s growth rate of +10.1%.

The S&P 500’s forward four-quarter estimate slightly decreased to $252.99 from $253.25, while the price-to-earnings (PE) ratio on the forward estimate increased from 20.25 to 20.6. The earnings yield also saw a slight decrease from 4.94% to 4.85%. Despite these minor fluctuations, the general health of S&P 500 earnings remains robust, with 450 companies reporting an average upside surprise of 8.3% for the first quarter of 2024, a significant improvement over the previous quarter’s +6.3%.

Sector-wise, consumer discretionary, financial services, and communication services have all shown positive adjustments in their growth expectations since late December 2023, with further improvements noted since April 1, 2024. Financials, in particular, have demonstrated strong performance, aided by reduced credit losses and more relaxed regulatory conditions. Conversely, technology has seen a stagnation in growth expectations, which may be a contributing factor to its relative underperformance in the stock market. However, with key earnings reports forthcoming, such as Nvidia’s on May 22, there might be shifts in this trend, particularly as semiconductor companies lead in artificial intelligence advancements.

Interestingly, the energy sector, which faced sharp downward revisions earlier, and the healthcare sector, which is anticipated to rebound in 2025, are also areas to watch. The broader picture for S&P 500 earnings is further underscored by the upward revision of the expected 2025 EPS from $278.12, showing incremental increases since the start of the year.

Looking ahead, notable earnings reports from major companies like Home Depot, Walmart, and Cisco Systems are scheduled for the coming week. These reports could provide further insights into the performance and outlook of key sectors within the S&P 500.

The overall landscape of S&P 500 earnings not only illustrates a healthy economic environment for these companies but also highlights the potential for continued growth. Even the EPS estimate for 2026 has been revised upwards from $300 to $312 over the past six weeks, suggesting an ongoing positive trend. Despite the inherent unpredictability of markets, the consistent strength displayed in S&P 500 earnings offers a compelling narrative of economic resilience and potential sustained growth. This robust performance, underpinned by a series of positive earnings surprises and sector-specific recoveries, underscores the dynamism of the U.S. economy, even as investors remain vigilant of any shifts that could alter the current trend.