Making sense of market moves
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Time flies when geopolitical turmoil, contentious elections, and interest rate cuts keep investors awake at night.
The fourth quarter of 2024 is upon us, and earnings season officially began with big banks JP Morgan and Wells Fargo announcing their latest numbers on Friday (quick recap: They were pretty good).
More announcements are coming in fast and furious this week, but before we dive into the nitty gritty of which stocks are set to pop this earnings season and which are poised to drop, it might be helpful to take a step back and look at the big picture.
Wall Street’s Q3 expectations
Broadly, this quarter’s earnings are expected to be what the pros would call “meh.”
FactSet recently noted that, compared to the historical average, Wall Street analysts have lowered their earnings per share (EPS) expectations heading into this quarter more than usual. While the 5-year average decrease in Q3 EPS estimates runs at 3.3%, this year analysts cut their estimates by 3.9%
That’s not to say this will be a terrible quarter. FactSet also noted that the S&P 500 as a whole should see a 4.2% increase in earnings compared to the same quarter a year ago. However, that’s slower than the 11% year over year earnings growth that the S&P 500 enjoyed in the second quarter.
So what gives? The problem is that stocks are caught at a crossroads this quarter. On the one hand, lower consumer spending and high inflation hurt profits. Just look at PepsiCo, an early reporter that announced softer sales last quarter after customers pulled back on spending.
On the other hand, interest rate cuts spur on economic growth. Rate-sensitive sectors like manufacturing and real estate should get a big boost from lower interest rates, though this earnings season may be too early for cuts to help bottom lines by much.
All in all, the bar is low for Q3 earnings—which may actually be a good thing for investors, since even a small earnings beat will likely surpass expectations enough for a stock to enjoy a solid boost.
But which stocks, exactly?
Watch these sectors
Even if Wall Street isn’t betting on a blowout earnings season, Bank of America analysts can help you find some earnings surprises to really make your portfolio pop this quarter.
They searched for stocks with strong EPS & sales revisions and guidance, as well as sectors with a higher ratio of positive to negative earnings surprises in the previous quarter. All told, their research points them to stocks in the information technology, real estate, and financials sectors as the most likely to post positive earnings surprises this quarter, while stocks in the energy and consumer staples sectors should fall flat.—MR