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Q4 earnings season officially kicked off this week, with 21 S&P 500 companies (mostly financials) reporting earnings. 14 companies beat estimates, 6 missed, and 1 tied. The average “surprise factor” was 6.4%; meaning companies reported earnings an average of 6.4% higher than Street expectations this week.

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Altogether, about 8% of S&P 500 companies have reported Q4 earnings so far. The beat rate is currently 81%, which is well above average. It hasn’t been this high since Q3 2023.

Earnings have come in 10.6% above expectations, which is also well above average. It similarly hasn’t been this high since Q3 2021. The total earnings growth for Q4 so far is +10.7%, on sales growth of +4.1%.

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The forward EPS (estimated earnings over the next 12 months, as shown by the blue line) has jumped to a record $273.18 as we rolled into the next quarter/year. Meanwhile, the trailing EPS (reported earnings over the last 12 months, as shown by the red line) is also at a record $242.46.

The expected earnings growth rate is now +12.7%, while the reported growth rate is +10.2%.

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The forward price-to-earnings ratio based on Friday’s close is now 22x, which is still about 30% above the historical average for both trailing and forward EPS.

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The risk premium over bonds seems to suggest that stocks haven’t been this expensive in about 20 years.

This has been a solid start to Q4 so far, but we still have a long way to go. The majority of the S&P 500 group will report earnings in the next two to three weeks, so we’ll get a much better picture then. Based on recent valuations, it seems that a lot of good news has already been priced in.

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