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Many in the market are looking to the two members of ‘the Magnificent 7’ who report quarterly results this week to help reverse the stock market’s recent weakness.
The immediate catalyst for the stock market pullback appears to be renewed uncertainty about regulatory and trade policies following the November elections, particularly with respect to export restrictions on semiconductor players. That said, we are in a seasonally soft time of the year and should perhaps resist the temptation to read too much into the recent weakness of the Mag 7 stocks, particularly given these stocks’ impressive runs already.
The chart below shows the performance of the Mag 7 stocks since the start of July relative to the S&P 500 index.
Image Source: Zacks Investment Research
As you can see in the above chart, Tesla (TSLA - Free Report) is in a league of its own (up +21.3% since July 1st), while Microsoft (MSFT - Free Report) (down -2.3%) and Alphabet (GOOGL - Free Report) (down -2.2%) are roughly tracking each other.
This pecking order, with Tesla at the top and Amazon (AMZN - Free Report) , Meta (META - Free Report) , and Nvidia (NVDA - Free Report) at the bottom, is completely reversed when the starting point is changed to the start of 2024 instead of the start of 2024 Q3, as the chart below shows.
Image Source: Zacks Investment Research
We have Tesla and Alphabet on deck to report Q2 results this week, both reporting after the market’s close on Tuesday, July 23rd.
The current Q2 Zacks Consensus EPS for Alphabet of $1.85 has remained unchanged over the last two months, as has Tesla’s Q2 EPS estimate of $0.62.
For Alphabet, the Q2 estimates of $1.85 per share on $70.6 billion in revenues represent year-over-year changes of +13.7% and +28.5%, respectively. Tesla’s Q2 EPS estimate is -31.9% below the year-earlier period on +0.8% higher revenues.
Both stocks move big on the earnings release, but the EPS surprise isn’t always the most important factor behind the stock’s post-release reaction. Alphabet shares were up following the last quarterly release on April 25th, with the market appreciating the company’s cloud results and AI outlook.
Tesla missed on the top and bottom-lines in the April 23rd quarterly release, but the stock was up following the numbers as the market liked the company’s performance on the deliveries front. In fact, Tesla shares have been on a steady uptrend since the April 23rd release, reversing the persistent underperformance of the preceding period.
The other Mag 7 players will report the following week, with Nvidia being the last one to release quarterly results on August 28th.
Take a look at the chart below that shows current consensus expectations for the ‘Mag 7’ stocks as a whole for the current and coming periods in the context of what they were able to achieve in the preceding period.
Image Source: Zacks Investment Research
As you can see, the group is expected to bring in +25.6% more earnings relative to the same period last year on +13.3% higher revenues.
The chart below shows the group’s earnings and revenue growth on an annual basis.
Image Source: Zacks Investment Research
As we all know by now, the group’s phenomenal boost in 2021 partly reflected pulled forward demand from future periods that got primarily adjusted in 2022. The group returned to the ‘regular/normal’ growth model last year, and the trend is expected to continue this year and beyond.
Beyond these Mag 7 players, total Q2 earnings for the Technology sector as a whole are expected to be up +15.5% from the same period last year on +9.3% higher revenues.
The chart below shows the sector’s Q2 earnings and revenue growth expectations in the context of where growth has been in recent quarters and what is expected in the coming four periods.
Image Source: Zacks Investment Research
As with the ‘Mag 7’, the Tech sector dealt with the pulled-forward revenues but is expected to remain firmly in growth mode, as the chart below shows.
Image Source: Zacks Investment Research
The Tech sector has enjoyed a favorable revisions trend for the last few quarters, with the Mag 7 stocks leading the rising estimates trend. The current +17.2% earnings growth expected for the group is up from +14.2% three months ago. Estimates for next year have also gone up.
Earnings Season Scorecard and This Week’s Earnings Reports
Through all the results that came out on Friday, July 19th, we have seen Q2 results from 71 S&P 500 members, or 14.2% of the index’s membership. Total earnings for these 71 index members are up +8.7% from the same period last year on +5.2% higher revenues, with 83.1% beating EPS estimates and only 53.5% able to beat revenue estimates.
The Q2 reporting cycle really ramps up this week, with more than 500 companies on deck to report results, including 135 S&P 500 members. In addition to the aforementioned Alphabet and Tesla, this week’s line-up includes a representative cross-section of reports from different sectors, including bellwethers like Verizon and AT&T, UPS, Coke, GM and Ford, Spotify, IBM, Chipotle, and others.
The comparisons charts below put the earnings and revenue beats percentages for these companies in a historical context.
Image Source: Zacks Investment Research
The one notable feature of the above comparison charts is the very low Q2 revenue beats percentage. In fact, 53.5% is a new low for this group of 71 index members over the preceding 20-quarter period (5 years).
The comparison charts below put the Q2 earnings and revenue growth rates for these 71 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 +9% from the same period last year on +4.8% 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 from 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 also on track to be a new all-time quarterly record.
You can see in the chart below that the $515.5 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 +8.8% on +1.6% revenue growth.
The expected revenue growth pace improves to +3.9% once Finance is excluded from the aggregate data, with the index level aggregate earnings growth for the year declining only to +8.7% 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 >>>> Q2 Earnings Season Starts Positively
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Big Tech Earnings Loom: What to Expect
Many in the market are looking to the two members of ‘the Magnificent 7’ who report quarterly results this week to help reverse the stock market’s recent weakness.
The immediate catalyst for the stock market pullback appears to be renewed uncertainty about regulatory and trade policies following the November elections, particularly with respect to export restrictions on semiconductor players. That said, we are in a seasonally soft time of the year and should perhaps resist the temptation to read too much into the recent weakness of the Mag 7 stocks, particularly given these stocks’ impressive runs already.
The chart below shows the performance of the Mag 7 stocks since the start of July relative to the S&P 500 index.
Image Source: Zacks Investment Research
As you can see in the above chart, Tesla (TSLA - Free Report) is in a league of its own (up +21.3% since July 1st), while Microsoft (MSFT - Free Report) (down -2.3%) and Alphabet (GOOGL - Free Report) (down -2.2%) are roughly tracking each other.
This pecking order, with Tesla at the top and Amazon (AMZN - Free Report) , Meta (META - Free Report) , and Nvidia (NVDA - Free Report) at the bottom, is completely reversed when the starting point is changed to the start of 2024 instead of the start of 2024 Q3, as the chart below shows.
Image Source: Zacks Investment Research
We have Tesla and Alphabet on deck to report Q2 results this week, both reporting after the market’s close on Tuesday, July 23rd.
The current Q2 Zacks Consensus EPS for Alphabet of $1.85 has remained unchanged over the last two months, as has Tesla’s Q2 EPS estimate of $0.62.
For Alphabet, the Q2 estimates of $1.85 per share on $70.6 billion in revenues represent year-over-year changes of +13.7% and +28.5%, respectively. Tesla’s Q2 EPS estimate is -31.9% below the year-earlier period on +0.8% higher revenues.
Both stocks move big on the earnings release, but the EPS surprise isn’t always the most important factor behind the stock’s post-release reaction. Alphabet shares were up following the last quarterly release on April 25th, with the market appreciating the company’s cloud results and AI outlook.
Tesla missed on the top and bottom-lines in the April 23rd quarterly release, but the stock was up following the numbers as the market liked the company’s performance on the deliveries front. In fact, Tesla shares have been on a steady uptrend since the April 23rd release, reversing the persistent underperformance of the preceding period.
The other Mag 7 players will report the following week, with Nvidia being the last one to release quarterly results on August 28th.
Take a look at the chart below that shows current consensus expectations for the ‘Mag 7’ stocks as a whole for the current and coming periods in the context of what they were able to achieve in the preceding period.
Image Source: Zacks Investment Research
As you can see, the group is expected to bring in +25.6% more earnings relative to the same period last year on +13.3% higher revenues.
The chart below shows the group’s earnings and revenue growth on an annual basis.
Image Source: Zacks Investment Research
As we all know by now, the group’s phenomenal boost in 2021 partly reflected pulled forward demand from future periods that got primarily adjusted in 2022. The group returned to the ‘regular/normal’ growth model last year, and the trend is expected to continue this year and beyond.
Beyond these Mag 7 players, total Q2 earnings for the Technology sector as a whole are expected to be up +15.5% from the same period last year on +9.3% higher revenues.
The chart below shows the sector’s Q2 earnings and revenue growth expectations in the context of where growth has been in recent quarters and what is expected in the coming four periods.
Image Source: Zacks Investment Research
As with the ‘Mag 7’, the Tech sector dealt with the pulled-forward revenues but is expected to remain firmly in growth mode, as the chart below shows.
Image Source: Zacks Investment Research
The Tech sector has enjoyed a favorable revisions trend for the last few quarters, with the Mag 7 stocks leading the rising estimates trend. The current +17.2% earnings growth expected for the group is up from +14.2% three months ago. Estimates for next year have also gone up.
Earnings Season Scorecard and This Week’s Earnings Reports
Through all the results that came out on Friday, July 19th, we have seen Q2 results from 71 S&P 500 members, or 14.2% of the index’s membership. Total earnings for these 71 index members are up +8.7% from the same period last year on +5.2% higher revenues, with 83.1% beating EPS estimates and only 53.5% able to beat revenue estimates.
The Q2 reporting cycle really ramps up this week, with more than 500 companies on deck to report results, including 135 S&P 500 members. In addition to the aforementioned Alphabet and Tesla, this week’s line-up includes a representative cross-section of reports from different sectors, including bellwethers like Verizon and AT&T, UPS, Coke, GM and Ford, Spotify, IBM, Chipotle, and others.
The comparisons charts below put the earnings and revenue beats percentages for these companies in a historical context.
Image Source: Zacks Investment Research
The one notable feature of the above comparison charts is the very low Q2 revenue beats percentage. In fact, 53.5% is a new low for this group of 71 index members over the preceding 20-quarter period (5 years).
The comparison charts below put the Q2 earnings and revenue growth rates for these 71 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 +9% from the same period last year on +4.8% 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 from 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 also on track to be a new all-time quarterly record.
You can see in the chart below that the $515.5 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 +8.8% on +1.6% revenue growth.
The expected revenue growth pace improves to +3.9% once Finance is excluded from the aggregate data, with the index level aggregate earnings growth for the year declining only to +8.7% 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 >>>> Q2 Earnings Season Starts Positively