1Q24 earnings wrap: S&P 500 scales record high as earnings season set to be best in two years

Published on June 10, 2024 by Susan Mathew and Rakesh Kumar

The 2024 first quarter earnings season lifted the S&P 500 to all-time highs as it added momentum to a rally that began in the final quarter of last year on rising hopes that the US Federal Reserve (Fed) would begin easing monetary policy. The index is up about 11% year to date (YTD).

Over 95% of the companies on the S&P 500 have reported results for the quarter ended March so far, and nearly 75% of those have topped Bloomberg’s earnings estimates. FactSet expects an earnings growth rate of nearly 6% for the quarter, which, it notes, would be the highest year-over-year earnings growth rate for the S&P 500 since the first quarter of 2022.

Sector-wise, eight of the eleven S&P 500 sectors recorded earnings growth, in line with the last quarter of 2023. The communication services sector led the board, delivering earnings growth of nearly 41% in 1Q, boosted by Google-parent Alphabet’s over 23% earnings beat. It is also the best performing sector YTD, with the S&P 500 Communications services index up about 21%. The consumer discretionary sector’s earnings growth of around 27% was the second best, thanks to e-commerce giant Amazon.com, which beat profit estimates by 42%. Semiconductor designer Nvidia continued to be the bull force for the S&P 500, handily topping estimates. This took the technology sector’s sales growth for the quarter to around 8% — the highest among all sectors. Healthcare was the worst performer, with earnings declining around 26%. Drugmaker Pfizer’s 61% profit beat, however, sought to put a floor beneath the earnings decline.

On the macroeconomic front, money markets have started to price in a near 50% chance of a September start to monetary policy easing by the Fed, as per the CME FedWatch Tool, and possibly one more before the year ends. The Fed has increasingly had to temper its dovish rhetoric as the job market stayed strong and inflation rose unexpectedly. However, the latest data sets have bolstered Fed rate cut speculations as they showed US consumer prices increased less than expected, jobs grew lesser than estimated in April and US economic growth slowed more than expected to 1.6% in the first quarter.

Geopolitical tensions remained high as wars continued in the Middle East, Russia and Ukraine. Elections underway and upcoming in several countries also made for cautious investors.

For the second quarter, only 42 out of the 106 companies that have provided profit guidance have issued forecasts above Street estimates, according to FactSet. The remaining 64 have fallen short of consensus forecasts for earnings.

Here are some sectoral highlights:

Financials: Fed in focus

The sector has reported the second highest sales growth for the quarter so far among the S&P 500’s eleven sectors, at 7.93%. It is also among the top five sectors that have reported the largest earnings surprise in the first quarter. The overall banking industry continued to show resilience during the period, with normalised earnings improving about 14% year on year due to higher non-interest income and lower provisioning¹.

While profits for most major Wall Street banks shrank year on year, reported figures did come in above expectations. Outlook disappointed, with some banks flagging declining interest income that fell short of analysts’ expectations. The S&P 500 financial index is up about 11% YTD.

• Trading and investment banking shone in some of the big banks, such as Morgan Stanley and Goldman Sachs.

• Exposure to the embattled commercial real estate sector continued to weigh on regional banks — New York Community Bancorp’s shares, for instance, slid even after it announced a USD5bn sale of mortgage warehouse loans to increase liquidity. The S&P 500 real estate index is the only sector in the red, down around 4% YTD.

What to watch:

• Shifting expectations for US interest rate cuts and possible pressure on profitability.

• Consumer spending: Even as spending remains robust, banks are preparing for more missed payments in a high interest rate environment and slowing growth. Bank of America said it had set aside more money to cover souring loans from consumers.

[1] ^{FDIC Quarterly Banking Profile First Quarter 2024 | FDIC}

Technology and the Magnificent Seven: Nvidia cruises, Alphabet declares dividend, Meta’s spend worrisome

The tech sector’s earnings grew over 24%. The S&P 500 tech index is up about 17% YTD, getting a boost from Nvidia’s bull rally. Among the Magnificent Seven — Apple, Amazon, Nvidia, Meta, Alphabet, Tesla and Microsoft — all except Tesla beat earnings estimates. Alphabet declared its first ever dividend of 20 cents per share, leaving Amazon and Tesla the only companies from the group to not offer dividends.

• Nvidia shares hit an all-time high, breaching USD1,000 a share, after it forecast 2Q revenue above market estimates following a 262% jump in quarterly revenue that also topped expectations. Profit also came in above estimates, and the company raised its dividend to 1 cent per share. Management plans to undertake a 10-for-1 stock-split in June. It expects its new Blackwell AI chips to ship in the current quarter. Company shares have more than doubled YTD.

• Meta’s quarterly profit more than doubled from a year ago, while revenue was roughly in line with estimates. But shares plunged after results, wiping nearly USD200bn off its market valuation following chief executive Mark Zuckerberg’s comments around prolonged spending on AI. It raised its 2024 total expense forecast to USD96bn-99bn from USD94bn-99bn and said it expected spending to continue to increase next year.

• Tesla’s results were a major upset again — it reported the biggest revenue decline since 2012. Investors, however, took heart after it revealed it would introduce new models by early 2025 using its current platforms and production lines — a faster timeline than previously forecasted.

What to watch:

• Retail investor interest in Nvidia shares following stock-split; could the split push it into the 30-member blue-chip Dow Jones Industrial Average?

• iPhone demand and competition for Apple

• Effect of AI spend on Meta’s top line

• Any potential changes in the timeline for Tesla’s new and cheaper offerings

Healthcare: Bristol Myers struggles, Lilly rides GLP-1 high

Healthcare saw the biggest earnings decline year on year among all the sectors, down over 25% in the first quarter. The S&P 500 healthcare index is up about 5% YTD.

• Bristol Myers Squibb’s quarterly loss accounted for much of the earnings decline, due to charges related to its acquisitions of Karuna Therapeutics, RayzeBio and Mirati Therapeutics. It has also slashed its full-year adjusted profit forecast. The results, however, were better than feared.

• Eli Lilly raised its full-year profit and revenue forecasts after demand surged for its GLP-1 drugs — weight-loss treatment Zepbound and type 2 diabetes drug Mounjaro.

• Pfizer raised its annual profit forecast after its quarterly earnings came in above expectations. It announced a programme to reduce expenses by about USD1.5bn by end-2027, adding on to a USD4bn cost cutting plan announced last year.

What to watch:

• Eli Lilly versus Europe’s Novo Nordisk in GLP-1 drugs

• Pfizer’s attempt at gaining market share for its respiratory syncytial virus

Consumer: Where is the Deal?

Consumer discretionary stocks delivered one of the biggest earnings surprises among sectors, driven by Amazon and General Motors. The sector’s earnings grew 27.4% in 1Q. In consumer staples, the earnings surprise was 8.6%, driven by Tyson Foods, Walgreens and Walmart. Many big-box retailers recently announced prices reductions on several items to attract value-oriented shoppers.

• Amazon’s first-quarter sales increased 13% and net income more than tripled, both beating expectations. This was driven by acceleration in Amazon Web Services, cost cutting and growth in advertising and cloud computing services. Its revenue forecast, however, came in below expectations.

• Walmart posted continued strong results driven by value proposition leading top-line strength, grocery market share gains, e-commerce growth and profitable growth in newer businesses such as global advertising and third-party marketplace. The company announced price reductions on nearly 7,000 grocery items.

• Target missed revenue and earnings expectations amid soft trends in discretionary categories and higher frequency items, which led to declines in traffic and average ticket. Attempting to keep up with other discounters, Target announced price cuts on 5,000 everyday items.

What to watch:

• Inflation pace, consumer confidence and fuel prices

• Pricing rivalry among retailers and its impact on margins

Industrials: Boeing’s tailspin

The S&P 500 industrials sector reported earnings growth of 4.2% for the quarter — the lowest among the index’s sectors. The sector is up nearly 9% YTD, with all eyes on Boeing after airlines raised issues regarding its prized 737 MAX series.

• Boeing’s quarterly revenue fell year on year, for the first time in seven quarters. Its results beat expectations, however, after estimates were lowered following an incident involving a plane’s door plug blowing out mid-flight, which led to a slowdown in the production of the 737 MAX, one of Boeing’s strongest selling jets. A slow pace of deliveries could affect Boeing’s timeline for production and financial goals, analysts have said.

• General Electric and RTX also delivered profit beats, with the former’s profit coming in 25% above estimates.

What to watch:

• Lawsuits and monetary charges against Boeing following parts blowing out of a 737 MAX jet mid-air; Boeing’s quality control plan

• Boeing’s deal to acquire key supplier Spirit AeroSystems

Energy: Weak energy prices and fuel margins 

The S&P 500 energy sector had the lowest percentage of companies reporting earnings above estimates, according to FactSet. The companies were hit by the decline in natural gas prices after a warmer-than-usual Northern Hemisphere winter affected demand and increased inventories. Global oil prices, meanwhile, were largely flat against a year ago. The S&P 500 energy index is up over 11% YTD.

• Exxon reported a 28% drop in first-quarter profits from a year ago, missing analyst estimates.

• Chevron’s profit beat expectations, but its revenue fell short. Its profit was supported by higher production thanks to the acquisition of PDC Energy, Inc. as well as strong execution in the Permian and Denver-Julesburg (DJ) basins.

What to watch:

• Chevron’s USD53bn Hess hope: Exxon is in a dispute with Chevron and Hess over assets in Guyana, which is home to some of the biggest oil finds in the past two decades. If Exxon prevails in the dispute, Chevron’s deal to acquire Hess could fall through.

How Acuity can help

Timely compilation of market-moving highlights from an earnings season requires an in-depth knowledge of markets, an understanding of the intermingling of technical and fundamental factors and staying up to date with latest developments. The content can be elevated by providing relevant macroeconomic, political and geopolitical context. Acuity Knowledge Partners employs a number of CFA-qualified analysts, senior journalists and experienced content specialists who have joined us from global news and research organisations and financial institutions. They can be commissioned to create content on client-specified topics within reasonable time frames.

---

---