By Caroline Valetkevitch
NEW YORK (Reuters) -Investors are watching to see if technology companies and related heavyweights will add to recent strong profit gains and whether growth is broadening to other sectors as corporate America prepares to report on the final quarter of another standout year for Wall Street.
They also want to hear what U.S. companies may say about the potential impact in 2025 from proposed tariffs, deregulation and tax policies under President-elect Donald Trump's new administration.
The fourth-quarter 2024 U.S. earnings season gets rolling next week, with some of the largest U.S. banks, including JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC), expected to report results on Wednesday.
Analysts expect S&P 500 companies overall to have increased earnings by 9.6% in the fourth quarter of 2024 compared with the year-ago period, which would be slightly better than the 9.1% earnings growth of last year's third quarter, according to data compiled by LSEG.
The S&P 500 rose 23% in 2024, its second-straight year of gains exceeding 20%, fueled in part by sharp gains in Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT) and other U.S. megacap companies leading the race for artificial intelligence technology. Communication services, which includes companies such as Alphabet (NASDAQ:GOOGL), and information technology had the biggest sector gains in 2024.
Even after a wobbly start to 2025, the S&P 500 is trading at a multiple of 21.5 times forward earnings, expensive compared to a 10-year average price-to-earnings ratio of about 18, based on LSEG data.
"We've had a lot of multiple expansion over the last couple of years. We need to see profits kind of follow through, so it will be important what these companies say about their fundamental conditions," said Anthony Saglimbene, chief market strategist at Ameriprise Financial (NYSE:AMP) in Troy, Michigan.
Expectations are high for big technology-related names, so they need to deliver upbeat results, he said, but "more sectors of the economy are expected to see profit growth start to accelerate, and that could start" with upcoming fourth-quarter results.
Communication services and technology companies dominated earnings gains in 2024, and they are estimated to have had among the biggest growth in the fourth quarter as well, LSEG data shows. But financials are seen on top for fourth-quarter 2024 growth as well, with estimated quarterly profit gains of 17.5%.
And profit growth is expected to broaden in 2025, with healthcare leading the way along with technology, and much stronger performance seen in industrials, materials and energy compared with 2024, based on the LSEG data.
"Growth rates are picking up from 2024 to 2025," said Stephanie Lang, chief investment officer at Homrich Berg in Atlanta, and "what we view as a positive is the broadening out of earnings."
Market watchers are also keen to hear from company executives about potential policy changes after Trump takes office on Jan. 20.
Some of Trump's plans, especially those for higher tariffs, could drive up consumer prices, while potentially less regulation under the new administration could fuel earnings growth in financials and other sectors.
CNN reported on Wednesday that Trump is considering declaring a national economic emergency to provide legal justification for a large swath of universal tariffs on both allies and adversaries.
"There's obviously a lot of uncertainty right now, and the timing of tariffs and the cadence in which they're rolled out matters a lot," said Timothy Chubb (NYSE:CB), chief investment officer at Girard, a Univest Wealth Division based in King of Prussia, Pennsylvania.
"I'm also interested in the color we might get from the banks on deregulation," he said.
Also, uncertainty over how many more times the Federal Reserve may cut interest rates in its current easing cycle is likely to put focus on company comments about the resilience of the consumer and the U.S. economy, which has so far defied expectations for a slowdown.