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• Total S&P 500 earnings for the first quarter of 2024 are expected to be up +2.2% from the same period last year on +3.4% higher revenues. This follows the +6.8% earnings growth on +3.9% higher revenues in 2023 Q4.
• As was the case in the preceding two quarters, the Tech sector remains a key growth driver in 2024 Q1. Had it not been for the robust Tech sector earnings growth, total earnings for the rest of the index would be modestly in negative territory.
• For the Finance sector, total Q1 earnings are expected to be up +3.3% on +2.4% higher revenues. This would follow the sector’s +12.4% earnings growth on +8.4% higher revenues in 2023 Q4.
• For 2024 Q1, ‘Magnificent 7’ earnings are expected to increase +33.0% on +13.0% higher revenues. Excluding the Mag 7 contribution, 2024 Q1 earnings for the rest of the index would be down -3.5% from the year-earlier period (vs. +2.2% growth otherwise).

The March-quarter reporting cycle will really get going once JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) , and Wells Fargo (WFC - Free Report) release their results on Friday. However, early results from companies with fiscal quarters ending in February have been coming out in recent days. Through April 9th, we have seen such early Q1 results from 20 S&P 500 members.

These early results appear to reconfirm the trends we have been seeing in recent quarters, with growth modestly accelerating and positive surprises relatively hard to come by. Overall, there are no major surprises at this early stage in the reporting cycle.

JPMorgan, Citigroup, and Wells Fargo are part of the Finance sector, whose Q1 earnings are expected to be up +3.3% from the same period last year on +2.4% higher revenues. This would follow the sector’s +12.4% earnings growth on +8.4% higher revenues in 2023 Q4.

Finance sector earnings estimates have largely remained stable since the quarter got underway, as we can see in the revisions trend for JPMorgan and Wells Fargo. Citigroup estimates have modestly come down, reflecting recent management commentary about higher costs.

The outlook for the core net interest income part of the business has modestly improved as the quarter progressed, with the continued growth in loan portfolios offsetting the modest margin squeeze. The stable to improving macro backdrop, as reflected in the positive stock-market momentum coupled with expectations of Fed easing going forward, has the potential to surprise us to the upside here, particularly concerning loan volume.

Beyond the core commercial banking business, we have been hearing about ‘green shoots’ on the M&A side for some time now, though the actual numbers on that front will be flat to modestly down in Q1. We will most likely see the same with respect to trading activities as well. The one relatively bright spot on the investment banking side has been on the equity and debt capital markets, and we will see good growth numbers from those businesses.

All in all, bank earnings should be good enough; not great, but not bad either, given the seemingly higher-for-longer Fed outlook.

Looking past the banks, total Q1 earnings for the S&P 500 index are expected to be up +2.2% from the same period last year on +3.4% higher revenues. The chart below shows current Q1 earnings and revenue growth expectations in the context of what has been actually achieved over the preceding four quarters and what is currently expected from the following three periods.

Image Source: Zacks Investment Research

You can see in this chart that earnings growth turned positive in the 2023 Q3 after remaining modestly in negative territory for the three quarters before that period. Two notable developments helped push the aggregate growth picture into positive territory – the Tech sector resumed its traditional growth-driver status, and net margins turned positive.

Expectations for 2024 Q1 and beyond show that the Tech sector is expected to remain a core growth driver, and the margin outlook will continue to improve.

The chart below shows how estimates for 2024 Q1 have evolved in recent months.

Image Source: Zacks Investment Research

Please note that the magnitude of negative revisions to Q1 estimates compared favorably to what we had seen in the comparable period for 2023 Q4.

Since the start of Q1, estimates came down for 9 of the 16 Zacks sectors. The sectors suffering the biggest estimate cuts include Energy, Basic Materials, Transportation, Autos, and Aerospace.

On the positive side, estimates have been raised for 6 of the 16 Zacks sectors since the quarter got underway, with the Retail, Tech, and Utilities sectors enjoying notable positive revisions.

The revisions trend noted here for 2024 Q1 also represents what’s happening to full-year 2024 estimates. While estimates in the aggregate are coming down, several major sectors, including the Tech sector, are still enjoying positive estimate revisions.

The chart below shows how estimates for full-year 2024 have evolved.

Image Source: Zacks Investment Research

The chart below shows how full-year earnings expectations for the Tech sector have evolved over this period.

Image Source: Zacks Investment Research

This favorable earnings outlook for the Tech sector should reassure us all of the fundamental underpinnings of the group’s stock-market momentum.

For the Tech sector as a whole, 2024 Q1 earnings are expected to be up +19.4% on +8.3% higher revenues. This would follow the sector’s +27.5% higher earnings in 2023 Q4 on +8.8% revenue growth. A big part of the Tech sector’s strong Q1 earnings growth and the group’s favorable revisions trend is due to the ‘Mag 7’ members, not all of whom are part of our Tech sector.

Take, for example, Meta (META - Free Report) and Nvidia (NVDA - Free Report) , whose Q1 earnings are expected to be up +58.8% and +487.5% from the year-earlier period, respectively. Excluding contributions from Meta and Nivida, Q1 earnings for the Tech sector would only increase by +7.0% instead of the +19.4% growth otherwise.

We also see an improving earnings outlook for Meta and Nvidia, with estimates steadily increasing. For example, the current 2024 Zacks Consensus EPS for Meta of $19.94 is up +13.6% over the last three months. The consensus EPS estimate for Nvidia has increased +20.6% over the same time period.

Below, we show the overall earnings picture for the S&P 500 index on an annual basis.

Image Source: Zacks Investment Research

A big part of this year’s earnings growth is expected to come from margins reversing last year’s declines and starting to expand again. The expectation is that aggregate net margins this year get back to the 2022 level, with the Tech sector driving most of the gains.

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