Life's Been Good...for Large Caps

First-quarter earnings results have been healthy thus far, but key to the ongoing rally will be companies' recovery in revenue growth and strengthening forward guidance.

With nearly 50% of S&P 500 companies having reported profits for the first quarter, earnings season is in full swing. So far, so good, given the blended growth rate—which combines already-reported results and estimates for companies which have not yet reported—is 5.6% year-over-year. It's worth noting that the blended rate would be 8.7% if adjusting for a major drag from the Health Care sector. Per LSEG (London Stock Exchange Group) I/B/E/S, the one-time $12 billion charge related to Bristol Myers Squibb's acquisition of Karuna Therapeutics, accounts for the discrepancy.

Less rosy is the blended growth rate for the Russell 2000, at -12% for the first quarter. Fortunately for that index, base effects will likely start to turn increasingly favorable. Small caps (as of Friday) are expected to see a better year of earnings growth with a current estimate of 20.7% for 2024 (vs. 9.9% for the S&P 500), as shown in the table below.

Earnings by Sector YoY

Source: Charles Schwab, LSEG I/B/E/S, as of 4/26/2024.

Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Past performance does not guarantee future results.