S&P 500 Now Reporting Year-over-Year Growth in Earnings for Q4 2023

After dipping to a year-over-year decline in earnings of -1.8% on January 19, the S&P 500 is now reporting year-over-year growth in earnings of 1.6% for the fourth quarter. What is driving the increase in earnings for the index since January 19?

The main reason for the improvement in earnings is that more companies have beaten EPS estimates and by a wider margin after January 19 compared to before January 19. Through January 19, 63% of S&P 500 companies had reported actual EPS above estimates. In aggregate, S&P 500 companies had reported actual earnings that were 17.8% below estimated earnings. At that point in time, nearly half (46%) of the companies that had reported actual results for the fourth quarter were in the Financials sector. Companies in the Financials sector, mainly in the Banks industry, accounted for most of this below-average performance relative to estimates. From December 31 through January 19, the blended earnings decline for the Financials sector increased from -2.2% to -19.2%.

Over the past two weeks, with more companies across the other 10 sectors reporting actual results, the performance of the index relative to estimates has improved. Since January 19, 75% of S&P 500 companies have reported actual EPS above estimates. In aggregate, S&P 500 companies have reported actual earnings that have exceeded estimates by 7.3% during this period. Overall, these positive earnings surprises have led to a net $16.0 billion increase in earnings (to $471.3 billion from 455.3 billion) for the index for Q4 since January 19. As a result, ten of the eleven sectors now have higher earnings growth rates (or smaller earnings declines) today compared to January 19, led by the Information Technology, Energy, Health Care, and Consumer Discretionary sectors.

The Information Technology sector is the largest contributor to this increase in earnings, accounting for about $3.8 billion of the net increase in earnings of $16.0 billion. The positive earnings surprises reported by Microsoft ($2.93 vs. $2.77), Apple ($2.18 vs. $2.10), QUALCOMM ($2.75 vs. $2.37), and Intel ($0.54 vs. $0.45) have been significant contributors to the increase in earnings for the index during this time. As a result, the blended earnings growth rate for the Information Technology sector has improved to 19.8% today from 15.9% on January 19.

The Energy sector is the second-largest contributor to this increase in earnings, accounting for about $2.8 billion of the net increase in earnings of $16.0 billion. The positive earnings surprises reported by Exxon Mobil ($2.48 vs. $2.20), Marathon Petroleum ($3.98 vs. $2.19) and Chevron ($3.45 vs. $3.19) have been substantial contributors to the increase in earnings for the index during this time. As a result, the blended earnings decline for the Energy sector has improved to -25.9% today from -31.7% on January 19.

The Health Care sector is the third-largest contributor to this increase in earnings, accounting for about $2.4 billion of the net increase in earnings of $16.0 billion. The positive earnings surprise reported by Pfizer ($0.10 vs. -$0.16) has been a significant contributor to the increase in earnings for the index during this time. As a result, the blended earnings decline for the Health Care sector has improved to -17.4% today from -20.8% on January 19.

The Consumer Discretionary sector is the fourth-largest contributor to this increase in earnings, accounting for about $2.0 billion of the net increase in earnings of $16.0 billion. The positive earnings surprise reported by Amazon.com ($1.00 vs. $0.79) has been a substantial contributor to the increase in earnings for the index during this time. As a result, the blended earnings growth rate for the Consumer Discretionary sector has improved to 29.9% today from 23.2% on January 19.

Outside of these four sectors, the positive EPS surprises reported by Chubb ($8.30 vs. $5.12), Meta Platforms ($5.33 vs. $4.82), and Alphabet ($1.64 vs. $1.59) have also been significant contributors to the increase in earnings for the index since January 19.

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