US Q2 2024 Earnings Season: Key Insights and Sector Results​

US companies perform well in Q2 earnings season

The US earnings season for the second quarter (Q2) of 2024 showed solid overall results. A significant 79% of S&P 500 companies reported positive earnings per share (EPS) surprises, exceeding the 5-year average of 77%. Compound earnings growth reached an impressive 11.3%, the highest growth rate since the fourth quarter (Q4) of 2021. Similarly, revenue growth for Q2 2024 was 5.3%, the highest rate since Q4 2022, indicating strong financial performance across the board.

Sector Performance – Utilities Perform Best While Materials Lose

Sector performance was mixed. Utilities led the pack with a significant 21.0% increase in earnings, closely followed by Information Technology with 20.3%. Other top performers included Financials, Healthcare and Consumer Discretionary. However, the Materials sector saw the largest decline in earnings at -8.4%. Information Technology outpaced other sectors in revenue growth with an 11.0% increase, followed by Energy with an 8.1% increase.

Earnings surprises muted

Despite the overall positive results, earnings surprises were somewhat muted. The average earnings surprise was 3.6%, falling below the 5-year average of 8.6%. The Utilities sector stood out as the largest positive earnings surprise at 9.5%, while the Communication Services sector posted the largest negative surprise at -12.0%. On the revenue front, 60% of companies reported revenues that exceeded estimates, which was below the 5-year average of 69%. The average revenue surprise was 0.7%, also falling below the 5-year average of 2.0%. The Healthcare and Information Technology sectors showed the highest percentage of companies beating revenue estimates.

The outlook is mixed, but growth will continue

Looking ahead, the outlook and forecasts for future quarters paint a mixed picture. For the third quarter (Q3) of 2024, 54% of companies issuing EPS forecasts have issued a negative outlook, below the 5-year average of 59%. Analysts are forecasting earnings growth of 4.9% in Q3 2024 and a more optimistic 15.4% growth in Q4 2024. For the full year 2024, expectations are set at 10.1% earnings growth and 5.1% revenue growth, suggesting continued optimism in the market.

S&P 500 valuation still high

Valuation metrics indicate that the market is pricing in future growth. The forward 12-month price-to-earnings (P/E) ratio for the S&P 500 is 20.6, which is higher than the 5-year (19.4) and 10-year (18.0) averages. This elevated P/E ratio suggests that investors are willing to pay a premium for future earnings, reflecting confidence in the prospects for continued growth.

The market reaction to earnings reports was somewhat muted compared to historical averages. Companies reporting positive earnings surprises saw their prices rise by an average of 0.9% over the coming days, slightly below the 5-year average of 1.0%. Those reporting negative surprises saw their prices fall by an average of 4.4%, which was more severe than the 5-year average of 2.3%. This suggests that while the market rewarded positive surprises less than usual, it punished negative surprises more severely.

While the Q2 2024 earnings season showed strong overall growth, there were mixed signals in terms of surprises and future guidance. The market seems to be pricing in further growth, as reflected in the above-average P/E ratio, but the reaction to the earnings reports suggests a degree of caution among investors.