Q1 2024 Earnings Season Review: Building Expectations

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When a Cinderella story comes out of nowhere to win a championship, fans are ecstatic (just like I was watching Tom Brady win his first Super Bowl against the heavily favored Rams). But once teams have experienced success, the bar will continue to rise—and teams must also rise to meet the next challenge.

For markets, the first quarter of 2024 was the first challenge, after roaring in 2023 by beating very low expectations. When we entered the reporting season, analysts were calling for earnings growth of 3.4 percent. While still a relatively low number compared to historical averages, it was a step up from flat earnings in 2023.

With 98 percent of the S&P 500 now reporting, 78 percent of those companies have beaten earnings estimates, leading to an expected 5.9 percent earnings growth for the quarter. More importantly, as I discussed in my earnings preview, earnings expectations for the rest of the year remain high, helping to support valuations that remain above 20x forward earnings expectations.

Growth Companies Continue to Outperform

Eight of 11 sectors reported year-over-year earnings growth, with 3 of the top 4 sectors being communication services, tech, and consumer discretionary (the largest sectors within the Russell 1000 Growth Index). Each of these sectors includes at least one of the “Magnificent Seven” (i.e., Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, and Tesla), which have been driving earnings growth for the index. In fact, without the Magnificent Seven, the S&P 500 would have seen a 2 percent earnings decline. Combined, these seven companies saw earnings growth of 50 percent compared to the first quarter of 2023.

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