By my count, 21 financial institutions are expected to report Q4 ’24 earnings this week, including most of the bank and brokerage giants, that we all know and love.
Those earnings releases will be covered in another blog post. Let’s look at a top-down analysis of S&P 500 earnings.
- The forward 4-quarter (FFQE) jumped to $272.92 this week, versus the $272.67 last week, and the $266.66 from the week of October 4 ’24.
- The forward PE ratio is 21.3x this week, versus 21.8x last week and the 21.6 from October 4 ’24.
- The S&P 500 earnings yield finally rose this week to 4.68% from 4.59% last week and 4.64% in early October ’24. (In my opinion the S&P 500 earnings yield is still too low, and needs to climb back above 5% or a 20x PE, to get the S&P 500 closer to equilibrium. )
- Remember, the S&P 500 “earnings yield” can be remedied two ways: stronger-than-expected S&P 500 earnings growth, or a declining S&P 500 index.
In last week’s S&P 500 earnings update, the numbers reflect what is expected to be a pretty strong Q4 ’24 earnings season.
Does sentiment reflect that? Earnings sentiment today seems more bullish than usual, or maybe that’s just me.
One sector that just smoked expectations in Q3 ’24 was the financial sector. Here was this blog’s look early in Q3 ’24 in terms of gauging financial sector results.
The financial sector was expecting +1.8% EPS growth and +4.3% revenue growth in early October ’24, only to wind up with actual growth of +8.6% EPS growth and +7.8% revenue growth. Revenue growth for the financials was almost 2x what was expected.
Does that upside repeat for Q4 ’24 bank and broker releases next week? We’ll have a more complete blog post over the weekend addressing the issue.
Last week, in the weekly S&P 500 earnings update linked above, financials and industrials were discussed in terms of the steady estimates of earnings growth progression for expected 2025 sector growth. Here’s the table again.
Industrials have shown steady positive revisions for expected 2025 EPS growth since early October, ’24. Delta Air Lines (NYSE:DAL) reported a very strong +9.4% revenue upside surprise this morning and guided to a healthy 2025. Delta and the transports were folded into the industrial sector years ago.
Healthcare looks decent too, but a lot depends on what RFK and the new FDA head come up with regarding vaccines, etc.
Conclusion:
Will there be different sector leadership for the S&P 500 in 2025, after three years of technology, consumer discretionary and communication services leading the benchmark for investors?
Typically growth stocks and higher PE tech stocks don’t react well to rising interest rates, as was the case in 2022, but so much what did well in 2020 and 2021 took a beating with the Fed actively raising rates.
I would worry about the 10-year Treasury yield if and when it rises above the October ’23 high tick of 4.99% and keeps rising.
A 10-year Treasury yield above 5% is a problem for market valuations.
The last time we saw a greater-than 5% yield on the 10-year Treasury before October ’23 was in 2006 at 5.24% and then mid-2007 at 5.32%. That’s almost 20 year ago.
I still think we have a much “bumpier” year in 2025, with Trump 2.0, uncertainty over tax cuts given the cacophony over deficit reduction, and uncertainty over tariffs, which can whack stocks and sectors overnight.
The best thing President Trump and the US Congress could do is quickly provide clarity and stability to what the next 2 years would look like.
Disclaimer: None of this is advice or a recommendation, but just an opinion. Past performance is no guarantee of future results. Investing can and does involve the loss of principal, even for short periods of time. All EPS estimates are typically sourced from LSEG. None of the above information may be updated and if updated may not be done so in a timely fashion.
Thanks for reading.