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Q3 is officially in the books now that all S&P 500 companies have reported results. Q4 will kick off next week, when the big banks report their Q4 results. For now, lets look at how the results came out. 76% of companies beat their earnings expectations, which was slightly below the recent average and Q2’s beat rate. But these averages are skewed by the sharp COVID recovery.

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Results came in 7.5% above expectations, which was clearly better than Q2 and the 3rd best quarter over the last 3 years in terms of surprise factor.

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Earnings grew 9.1%, which was down from the 13.2% growth rate of Q2. But still a strong recovery for the 5th straight quarter, after the minor “earnings recession” of late 2022 to early 2023.

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Sales grew a solid 5.5%, which tied Q2’s results for the second strongest quarter over the last 2 years.

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Breaking it down by sector, seven of the eleven sectors experienced earnings growth in Q3. The biggest contributors to the growth rate came from communications, tech, utilities and health care; while energy was the clear drag.

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Sales grew in eight of the eleven sectors in Q3, led by tech and health care. Energy was once again the drag on total results.

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More companies beat earnings expectations in the communications, health care, and tech sectors. With financials also performing above the index average as well. The clear drag was materials, real estate, and consumer discretionary.

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Results beating expectations by a wider than expected margin were led by the utilities and comm services sector. And once again, the materials and real estate sectors disappointed.

Altogether a pretty solid quarter. Not all that surprising to see the S&P 500 index finish higher in both Q3 and Q4 (actually the S&P 500 is currently on a 5 quarter winning streak). As of today, the market is pricing in about 9.6% earnings growth and 4.1% sales growth as the baseline. (Source: LSEG I/B/E/S)

Of course, the markets reaction to earnings will be based upon what the actual results are compared to current expectations. Along with the forward guidance.

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