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Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
For the 146 S&P 500 companies that have reported Q3 results, total earnings are up +8.6% from the same period last year on +4.8% higher revenues, with 80.1% beating EPS estimates and 61.6% beating revenue estimates.
The earnings growth for this group of 146 S&P 500 members represents a notable improvement over what we had seen from this group of companies in other recent periods. Still, the revenue growth pace represents a clear decelerating trend.
Looking at Q3 as a whole, total S&P 500 earnings are currently expected to be down -0.3% from the same period last year on +1.0% higher revenues. If companies continue to surprise to the upside, the Q3 earnings growth rate will most likely turn positive in the next few days.
Excluding the drag from the Energy sector, whose earnings are expected to decline -35.5% in Q3, earnings for the other 15 Zacks sectors in the S&P 500 index would be up +4.6% on +3.5% higher revenues.
The market’s contrasting reactions to the otherwise strong results from Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) primarily reflected growth trends in the two companies’ cloud operations.
Alphabet’s cloud revenues were a tad bit on the weak side and represented a modest deceleration from the June quarter’s growth pace. Microsoft not only beat cloud revenue estimates but actually showed the growth trend accelerating.
Investor’s disappointment with the Alphabet report notwithstanding, the search giant showed impressive gains in advertising revenues, with YouTube ad revenues particularly showing momentum. Alphabet’s advertising performance likely offers a useful read-through for Meta (META - Free Report) and Amazon (AMZN - Free Report) .
In terms of Q3 earnings and revenue results, Microsoft’s earnings increased +27% from the same period last year on +12.8% higher revenues, while the same for Alphabet increased by +41.5% and +11.8%, respectively.
Microsoft and Alphabet are part of the 7 mega-cap stocks, most of which are from the Tech sector. We call this group the ‘Big 7 Tech Players’, which, besides Microsoft and Alphabet, includes Apple (AAPL - Free Report) , Nvidia (NVDA - Free Report) , Tesla (TSLA - Free Report) , Meta (META - Free Report) , and Amazon (AMZN - Free Report) .
Q3 earnings for this group of companies are expected to grow by +40.7% from the same period last year on +11.7% higher revenues.
Image Source: Zacks Investment Research
The ‘Big 7 Tech Players’ are a big contributor to overall index earnings now and going forward. Excluding the earnings contribution from the ‘Big 7’, S&P 500 earnings for the rest of the index would be down -6.3% (down -0.3% otherwise) in Q3.
Beyond these mega-cap stocks, the growth outlook for the Tech sector has notably improved as well. The sector has been operating in a constrained growth environment since 2021 Q4, but this is on track to change starting with the group’s Q3 results, as you can see in the chart below.
Image Source: Zacks Investment Research
Looking at Q3 expectations as a whole, total S&P 500 earnings are expected to be down -0.3% from the same period last year on +1.0% higher revenues.
The chart below shows the overall earnings picture on a quarterly basis.
Image Source: Zacks Investment Research
As you can see from these quarterly earnings-growth expectations, the long-feared recession doesn’t show up in this near-term earnings outlook.
We show below the overall earnings picture for the S&P 500 index on an annual basis.
Image Source: Zacks Investment Research
This big-picture view of corporate profitability doesn’t leave much room for that development either, as shown in the chart above.
Given the emerging consensus on the ‘soft-landing’ outlook for the economy, one can expect this favorable turn in the overall earnings picture to strengthen further as companies report Q3 results and share trends in underlying business.
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The Earnings Picture Continues to Improve
Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
The market’s contrasting reactions to the otherwise strong results from Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) primarily reflected growth trends in the two companies’ cloud operations.
Alphabet’s cloud revenues were a tad bit on the weak side and represented a modest deceleration from the June quarter’s growth pace. Microsoft not only beat cloud revenue estimates but actually showed the growth trend accelerating.
Investor’s disappointment with the Alphabet report notwithstanding, the search giant showed impressive gains in advertising revenues, with YouTube ad revenues particularly showing momentum. Alphabet’s advertising performance likely offers a useful read-through for Meta (META - Free Report) and Amazon (AMZN - Free Report) .
In terms of Q3 earnings and revenue results, Microsoft’s earnings increased +27% from the same period last year on +12.8% higher revenues, while the same for Alphabet increased by +41.5% and +11.8%, respectively.
Microsoft and Alphabet are part of the 7 mega-cap stocks, most of which are from the Tech sector. We call this group the ‘Big 7 Tech Players’, which, besides Microsoft and Alphabet, includes Apple (AAPL - Free Report) , Nvidia (NVDA - Free Report) , Tesla (TSLA - Free Report) , Meta (META - Free Report) , and Amazon (AMZN - Free Report) .
Q3 earnings for this group of companies are expected to grow by +40.7% from the same period last year on +11.7% higher revenues.
Image Source: Zacks Investment Research
The ‘Big 7 Tech Players’ are a big contributor to overall index earnings now and going forward. Excluding the earnings contribution from the ‘Big 7’, S&P 500 earnings for the rest of the index would be down -6.3% (down -0.3% otherwise) in Q3.
Beyond these mega-cap stocks, the growth outlook for the Tech sector has notably improved as well. The sector has been operating in a constrained growth environment since 2021 Q4, but this is on track to change starting with the group’s Q3 results, as you can see in the chart below.
Image Source: Zacks Investment Research
Looking at Q3 expectations as a whole, total S&P 500 earnings are expected to be down -0.3% from the same period last year on +1.0% higher revenues.
The chart below shows the overall earnings picture on a quarterly basis.
Image Source: Zacks Investment Research
As you can see from these quarterly earnings-growth expectations, the long-feared recession doesn’t show up in this near-term earnings outlook.
We show below the overall earnings picture for the S&P 500 index on an annual basis.
Image Source: Zacks Investment Research
This big-picture view of corporate profitability doesn’t leave much room for that development either, as shown in the chart above.
Given the emerging consensus on the ‘soft-landing’ outlook for the economy, one can expect this favorable turn in the overall earnings picture to strengthen further as companies report Q3 results and share trends in underlying business.