First Quarter Earnings: The Magnificent 7 on S&P 500

:“Modern office with expansive digital stock market display on wall, sleek minimalist desk and chair under soft lighting”.

Bar Neither High Nor Low:

Unlike in the fourth quarter reporting season, when consensus estimates came down by 6.8% between October and December, the picture is different this quarter, said LPL Financial Chief Equity Strategist Jeffrey Buchbinder in his preview.

This time around, the consensus was cut by just 2.5% between January and March, and therefore the bar wasn’t so low, he said.

The analyst sees the typical three to four percentage-point upside to current estimates as achievable, potentially propelling S&P 500 earnings per share growth for the quarter to about 6%.

Positives And Pushbacks:

Buchbinder threw in some data points to lend credence to his view that the economic fundamentals were firming up and these include:

  • Bloomberg-tracked consensus GDP growth estimate rising from 0.5% to 2% since the start of 2024
  • Institute for Supply Management’s manufacturing purchasing managers’ index jumped into expansion territory in March
  • Citigroup Economic Surprise Index soared from -2.4 in January to +39 in April
  • Green shoots emerging in Europe and China

The analyst also viewed the sticky inflation as positive for top-line growth, given inflation is pricing power. He estimated that first-quarter revenue may have grown 4% year-over-year, matching the pace seen in the fourth quarter.

Higher crude oil prices and copper prices may have helped the natural resource sector mitigate its earnings decline, Buchbinder said. He sees some offsetting impact coming from the double-digit decline in natural gas prices.

On the other hand, the dollar strength could adversely affect earnings for companies operating worldwide, as the greenback appreciated 3% during the quarter, the analyst said. Other challenges highlighted by the analyst include:

  • Wage pressures
  • Cumulative effects of inflation
  • Rising interest rates on consumers’ spending power
  • Shipping disruptions from the Baltimore bridge collapse
  • The increasing difficulty exceeding expectations as the economic cycle matures.

Putting all of this together, our best guess is about 3% upside and 6% earnings growth,” Buchbinder said.

:

Big Tech Outperformance:

As was seen in the fourth quarter, big techs will again do the heavy lifting, the LPL analyst said. Five of the Magnificent Seven stocks are expected to report earnings growth in the first quarter, driving more than five percentage-point increase in the S&P 500 earnings per share this quarter, he said.

Alphabet, Inc., Amazon, Inc., Microsoft Corp., Meta Platforms, Inc. and Nvidia Corp. will likely see year-over-year earnings growth, while Apple, Inc. and Tesla, Inc. are poised to see earnings decline, he said.

As a group, the Mag 7 are expected to report earnings growth near 40% year over year, while the rest of the S&P 500 — the 493 — will need to deliver some healthy upside just to match the earnings from the year-ago quarter,” he added.

But importantly, the point when the ‘493’ will start contributing to overall profits is drawing closer,” the analyst said, referring to the S&P 500 companies sans the Magnificent Seven.

Buchbinder said he expects “corporate America to produce typical upside relative to expectations in the quarter and deliver S&P 500 earnings growth of around 6%.” “The economic environment and AI investment remain supportive of corporate profits, so downside surprises this earnings season seem unlikely,” the analyst said. Estimate cuts are unlikely, though currency headwinds may temper guidance slightly, he added.

Leave a Reply

Your email address will not be published. Required fields are marked *

Best Exchanges

XTB is a globally recognized trading platform regulated by several authorities, including the UK's Financial Conduct Authority (FCA), the Cyprus Securities and Exchange Commission (CySEC), and others. This multi-regulatory oversight ensures compliance with high standards and provides a secure trading environment for investors.

Regulated by top-tier authorities, Capital.com provides a secure trading environment under the supervision of ASIC, CySEC, and FCA, ensuring high standards of investor protection.

AGlobalTrade operates from Saint Lucia but lacks specific regulatory oversight from renowned financial authorities such as the Securities and Exchange Commission (SEC) or the Financial Conduct Authority (FCA). The absence of such regulatory authorization may raise concerns about the broker's adherence to industry standards and investor protection protocols. Traders should exercise caution and conduct thorough due diligence before engaging with AGlobalTrade to ensure the safety of their investments.
XTB is a globally recognized trading platform regulated by several authorities, including the UK's Financial Conduct Authority (FCA), the Cyprus Securities and Exchange Commission (CySEC), and others.

Operating under the ownership of PowerStox Ltd. with registration number 25308 BC 2019, PowerStox stands as a testament to global online trading's evolution from its headquarters in the British Virgin Islands. Its careful construction by financial experts highlights its dedication to transparency and reliability, ensuring robust security measures.

CMC Markets is a well-established broker, founded in 1989, and is overseen by several top-tier regulatory bodies. With authorization from five Tier-1 regulators, including the ASIC, CIRO, MAS, FMA, and FCA, CMC Markets offers a high degree of investor protection and reliability.