As the Q4 2024 earnings season progresses, attention remains divided between policy developments in Washington and corporate profit trends. With 78% of the S&P 500 market capitalization having reported results by February 13, the earnings-per-share (EPS) growth estimate for Q4 has risen to 12.6%, up from 7.3% on January 10, according to Bloomberg.
Bloomberg's full-year consensus EPS forecasts predict $246 per share for 2024 and $271 per share for 2025. The revised estimate for 2025 is slightly lower than earlier projections but is considered more realistic given current GDP growth forecasts.
Earnings reports from five of the "Magnificent 7" stocks—Alphabet, Amazon.com, Apple, Microsoft, and Tesla—were described as lowlights due to revenue growth issues and lower-than-expected forward projections. Meta Platforms was an exception among this group. Each company is heavily involved in AI development, which will continue to draw scrutiny over capital spending and competition from China's AI firms.
The broader market has shown positive performance with a year-over-year earnings growth rate of 7.5%, led by strong results in the Financials sector. However, concerns remain about consumer spending due to inflation pressures on lower-income households.
The convergence of earnings growth rates between the Magnificent 7 and other S&P 500 companies remains uncertain. While Magnificent 7 earnings are expected to decline due to challenging comparisons, non-Magnificent 7 stocks are anticipated to see improved growth later this year.
"Earnings reports from five of the so-called Magnificent 7 stocks—Alphabet, Amazon.com, Apple, Microsoft, and Tesla—have been lowlights," said Kelly Bogdanova of RBC Wealth Management.
Whether convergence occurs will depend on economic conditions; robust GDP growth could lead to significant returns outside the Magnificent Seven group.