‘Magnificent Seven’ Companies Continue to Drive S&P 500 Earnings

The Start of Earnings Season: Good News and Bad News

As the start of earnings season unfolds, investors are receiving a mixed bag of news. While some sectors are showing strong performance, others are facing challenges. Earnings for tech companies are holding up well, with Bank of America’s equity and quant strategist, Savita Subramanian, highlighting Nvidia, Amazon, Meta, Alphabet, Microsoft, and Apple as the biggest drivers of earnings per share growth in the fourth quarter, expected to increase by 56% year over year. Conversely, without these six stocks, the rest of the S&P is projected to see earnings fall by 6%.

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Further insight was provided by Jeffrey Buchbinder, chief equity strategist for LPL Financial, who presented a chart showcasing the impact of the “Magnificent Seven” on quarterly earnings for the S&P 500. This group, including the aforementioned tech giants along with Tesla, has been driving S&P earnings in every quarter of the past year, except the first quarter, and is anticipated to continue this trend through the third quarter of 2024. Despite an expected 11% earnings growth for the S&P 500 in 2024, Buchbinder notes that this will be challenging, considering his estimated 1% growth for the U.S. economy this year. His projection of $235 for S&P 500 earnings in 2024 is below the consensus of $243, reflecting the difficulty of achieving substantial earnings gains in a slower economic environment.

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Amidst these developments, macro comments from Tuesday morning’s bank calls suggest a sense of optimism regarding the U.S. consumer. Goldman Sachs and Morgan Stanley both pointed to the resilience of the U.S. economy, despite various challenges such as tightening financial conditions, regional bank failures, and geopolitical tensions. Both institutions expressed confidence in the prospect of the U.S. leading the global recovery in 2024, emphasizing the opportunity for growth despite potential risks linked to consumer behavior, interest rates, and geopolitical factors.

Overall, the start of earnings season has provided a nuanced view of the market landscape, with certain sectors thriving while others navigate uncertainties. Investors will need to closely monitor the performance of key players and macroeconomic indicators to navigate the evolving market dynamics in the coming months.

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