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Q2 Earnings Growth Expected to Reach Two-Year High
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The market isn’t particularly impressed with what it saw in the quarterly releases from JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) , and Wells Fargo (WFC - Free Report) , even though all three beat top- and bottom-line expectations.
Part of the issue appears to be underwhelming guidance and management commentary, reflecting moderating economic activities on the back of elevated interest rates.
The stocks' outperformance entering this reporting cycle also contributed to the market’s tentative initial reaction to these results.
You can see this in the chart below, which shows the three-month performance of JPMorgan, Citigroup, and Wells Fargo relative to the S&P 500 index. The chart shows the performance of these three stocks relative to the market through Thursday, July 11th, the day before the quarterly results.
Image Source: Zacks Investment Research
While all three stocks have outperformed the market in this period, Citigroup's outperformance is more a function of market confidence in the company’s restructuring efforts than any near-term profitability outlook.
We see the Q2 results from these three major banks as good enough–not great, but definitely not bad either. There were no major surprises from either of the three banks, with management’s commentary about financial stress at the lower end of the income distribution no longer a new development following results from several consumer-facing companies.
In the core banking business, profitability remains constrained by margin pressures, cyclically soft demand for credit, and some deterioration in credit quality, albeit from a very low level. On the capital markets side, trading revenues remain strong, and the investment banking business has started showing signs of growth but still remains below the strong level of two years ago. There has been talk of ‘green shoots’ concerning deal pipelines, but the catalyst for that is expected to be the coming Fed easing cycle.
Looking at the Q2 earnings season scorecard for the Finance sector, we now have results from 16.4% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Finance companies are up +0.2% from the same period last year on +11.5% higher revenues, with 100% EPS and revenue beats percentages at this stage.
Looking at the Finance sector as a whole, total Q2 earnings for the sector are expected to be up +10.8% on +6.6% higher revenues.
Image Source: Zacks Investment Research
Q2 Earnings Season Scorecard
Including the aforementioned reports from JPMorgan, Citi, and Wells Fargo, we now have Q2 results from 27 S&P 500 members. Total earnings for these 27 index members are up +8.8% from the same period last year on +4.4% higher revenues, with 81.5% beating EPS estimates and only 44.4% able to beat revenue estimates.
The Q2 reporting cycle really ramps up this week, with 45 S&P 500 members on deck to report results. This week’s line-up is heavily weighted toward the Finance sector, but we do have several bellwethers from other sectors reporting results, including Johnson & Johnson, UnitedHealth, Netflix, Schlumberger, and others.
This is too small a sample of results to draw any conclusions from, but the comparisons charts below put the earnings and revenue beats percentages for these companies in a historical context.
Image Source: Zacks Investment Research
This is by no means a representative sample of results at this early stage, but we will be keenly looking at how the revenue beats percentage evolves in the days ahead, as we are off to a rough start on that count.
The comparison charts below put the Q2 earnings and revenue growth rates for these 27 companies in a historical context.
Image Source: Zacks Investment Research
The Earnings Big Picture
Looking at Q2 as a whole, combining the actual results that have come out already with estimates for the still-to-come companies, total S&P 500 earnings are expected to be up +8.5% from the same period last year on +4.7% higher revenues. This will be the highest quarterly growth pace since the +10% earnings growth rate in the 2022 Q1 period.
The chart below that shows the year-over-year earnings and revenue growth for 2024 Q2 in the context of what we saw in the preceding four periods and what is currently expected for the following three periods.
Image Source: Zacks Investment Research
As we have been flagging all along in this space, we experienced a notably favorable revisions trend ahead of the start of the Q2 earnings season, with estimates for Q2 holding up far better than other recent periods. In the three-month period since the start of the quarter through June 30th, Q2 estimates for the S&P 500 index fell the least relative to the comparable periods of other recent quarters.
Not only is the Q2 earnings growth the highest since the first quarter of 2022, but the absolute level of aggregate earnings for the period is on track to be a new all-time quarterly record.
You can see in the chart below that the $513 billion in aggregate S&P 500 earnings for Q2 are above the $512.3 billion earned by the index in 2023 Q3.
Image Source: Zacks Investment Research
Looking at earnings expectations on an annual basis, total 2024 S&P 500 earnings are expected to be up +8.9% on +1.6% revenue growth.
The expected revenue growth pace improves to +3.8% once Finance is excluded from the aggregate data, with the index-level aggregate earnings growth for the year remaining unchanged on an ex-Finance basis.
Image: Bigstock
Q2 Earnings Growth Expected to Reach Two-Year High
The market isn’t particularly impressed with what it saw in the quarterly releases from JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) , and Wells Fargo (WFC - Free Report) , even though all three beat top- and bottom-line expectations.
Part of the issue appears to be underwhelming guidance and management commentary, reflecting moderating economic activities on the back of elevated interest rates.
The stocks' outperformance entering this reporting cycle also contributed to the market’s tentative initial reaction to these results.
You can see this in the chart below, which shows the three-month performance of JPMorgan, Citigroup, and Wells Fargo relative to the S&P 500 index. The chart shows the performance of these three stocks relative to the market through Thursday, July 11th, the day before the quarterly results.
Image Source: Zacks Investment Research
While all three stocks have outperformed the market in this period, Citigroup's outperformance is more a function of market confidence in the company’s restructuring efforts than any near-term profitability outlook.
We see the Q2 results from these three major banks as good enough–not great, but definitely not bad either. There were no major surprises from either of the three banks, with management’s commentary about financial stress at the lower end of the income distribution no longer a new development following results from several consumer-facing companies.
In the core banking business, profitability remains constrained by margin pressures, cyclically soft demand for credit, and some deterioration in credit quality, albeit from a very low level. On the capital markets side, trading revenues remain strong, and the investment banking business has started showing signs of growth but still remains below the strong level of two years ago. There has been talk of ‘green shoots’ concerning deal pipelines, but the catalyst for that is expected to be the coming Fed easing cycle.
Looking at the Q2 earnings season scorecard for the Finance sector, we now have results from 16.4% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Finance companies are up +0.2% from the same period last year on +11.5% higher revenues, with 100% EPS and revenue beats percentages at this stage.
Looking at the Finance sector as a whole, total Q2 earnings for the sector are expected to be up +10.8% on +6.6% higher revenues.
Image Source: Zacks Investment Research
Q2 Earnings Season Scorecard
Including the aforementioned reports from JPMorgan, Citi, and Wells Fargo, we now have Q2 results from 27 S&P 500 members. Total earnings for these 27 index members are up +8.8% from the same period last year on +4.4% higher revenues, with 81.5% beating EPS estimates and only 44.4% able to beat revenue estimates.
The Q2 reporting cycle really ramps up this week, with 45 S&P 500 members on deck to report results. This week’s line-up is heavily weighted toward the Finance sector, but we do have several bellwethers from other sectors reporting results, including Johnson & Johnson, UnitedHealth, Netflix, Schlumberger, and others.
This is too small a sample of results to draw any conclusions from, but the comparisons charts below put the earnings and revenue beats percentages for these companies in a historical context.
Image Source: Zacks Investment Research
This is by no means a representative sample of results at this early stage, but we will be keenly looking at how the revenue beats percentage evolves in the days ahead, as we are off to a rough start on that count.
The comparison charts below put the Q2 earnings and revenue growth rates for these 27 companies in a historical context.
Image Source: Zacks Investment Research
The Earnings Big Picture
Looking at Q2 as a whole, combining the actual results that have come out already with estimates for the still-to-come companies, total S&P 500 earnings are expected to be up +8.5% from the same period last year on +4.7% higher revenues. This will be the highest quarterly growth pace since the +10% earnings growth rate in the 2022 Q1 period.
The chart below that shows the year-over-year earnings and revenue growth for 2024 Q2 in the context of what we saw in the preceding four periods and what is currently expected for the following three periods.
Image Source: Zacks Investment Research
As we have been flagging all along in this space, we experienced a notably favorable revisions trend ahead of the start of the Q2 earnings season, with estimates for Q2 holding up far better than other recent periods. In the three-month period since the start of the quarter through June 30th, Q2 estimates for the S&P 500 index fell the least relative to the comparable periods of other recent quarters.
Not only is the Q2 earnings growth the highest since the first quarter of 2022, but the absolute level of aggregate earnings for the period is on track to be a new all-time quarterly record.
You can see in the chart below that the $513 billion in aggregate S&P 500 earnings for Q2 are above the $512.3 billion earned by the index in 2023 Q3.
Image Source: Zacks Investment Research
Looking at earnings expectations on an annual basis, total 2024 S&P 500 earnings are expected to be up +8.9% on +1.6% revenue growth.
The expected revenue growth pace improves to +3.8% once Finance is excluded from the aggregate data, with the index-level aggregate earnings growth for the year remaining unchanged on an ex-Finance basis.
Image Source: Zacks Investment Research
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Earnings Season Gets Underway: Bank Earnings in Focus