The week in review
- Flash Mfg./Services PMI: 49.5/56.0
- 2Q24 GDP accelerated to 2.8% ann.
- Core PCE eased to 2.6% y/y
The week ahead
- House price index
- JOLTS
- FOMC
Thought of the Week
While the recent political developments in Washington have grabbed headlines, it is important for investors not to lose sight of the fundamentals. The 2Q24 earnings season is underway, and by the end of last week, nearly half of the S&P 500’s market cap had already reported their earnings.
Analysts are tracking pro-forma earnings per share (EPS) of $59.46 for 2Q24. If realized, this would represent a 5.3% q/q and 9.1% y/y growth. Of this annual change, most of the EPS growth (around 7.8% out of 9.1%) is projected to be driven by margin expansion (from 11.8% a year ago to 12.7%), while sales are expected to contribute 1.8%. Net buybacks are expected to have a negative contribution of 0.6%.
As the chart of the week shows, 8 out of 11 sectors are expected to contribute positively to EPS growth. Technology leads yet again, with most of the earnings growth coming from increased sales as aggressive AI-related capex spending still dominates margin expansion. On the flip side, EPS growth in financials, the second largest contributor, is projected to stem from margin expansion, primarily on the back of a rebound in investment banking and trading revenues. Of the remaining three sectors expected to drag down the EPS, energy is projected to have the most negative impact, as lower refining margins are expected to erode profitability of the sector.
Looking ahead, if the trend of above-average earnings beats and upward revisions witnessed in 1Q24 continues, the 2Q24 earnings season could end with double-digit EPS growth for the quarter.
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