Earnings Season Is Two-Thirds Over. Here's How It's Going and What It Means for the Market.
Key Points
Four "Magnificent Seven" companies play a key role.
They are among the largest contributors to S&P 500 earnings growth.
These megacap tech firms continue to drive the market higher.
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About two-thirds of S&P 500 companies have reported their quarterly results this earnings season. And so far, those results have been very good, a highly positive signal for share prices.
According to FactSet, which tracks S&P 500 earnings, 84% of companies that have reported results have come in above earnings-per-share (EPS) estimates. That's significantly higher than the 10-year average of 76%.
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And if the remaining companies post similar numbers, resulting in 84% of all companies reporting better-than-expected earnings, it will be the highest percentage of S&P companies beating earnings since the second quarter of 2021. That's great news for the entire U.S. stock market (the S&P 500 is a good proxy for the market, representing about 80% of total available market capitalization).
In addition, the growth rate for S&P 500 company earnings so far is about 27%. If it remains at that level through the end of first-quarter earnings season, it would be the highest year-over-year increase since the fourth quarter of 2021.
Image source: Getty Images.
The companies that are leading the way for quarterly earnings growth
That strong pace of earnings growth can largely be attributed to the "Magnificent Seven" companies that reported results last week. Positive EPS surprises by Google parent Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Meta Platforms (NASDAQ: META) were the largest contributors to this increase in the growth rate.
FactSet notes that all three tech companies had unusual developments during the quarter that significantly boosted their earnings. Alphabet's results included a $37.7 billion increase due to unrealized gains on equity securities. Amazon recorded a $16.8 billion gain from its investment in AI company Anthropic. And Meta had an $8 billion tax benefit.
Nvidia (NASDAQ: NVDA), the largest company in the world by market capitalization, reported its fiscal fourth-quarter results on Feb. 25. The company's fiscal year begins on Feb. 1, so its fourth-quarter results are included in FactSet's first-quarter calculations. Nvidia reported sales of $68.1 billion for the quarter and beat Wall Street's earnings expectations. EPS came in at $1.62 for the quarter, about 6% above the average analyst estimate.
As a result, Nvidia was also one of the top five contributors to S&P 500 earnings growth for the quarter. The company will report its fiscal first-quarter results on May 20. While those results will technically contribute to FactSet's second-quarter totals, Wall Street will still watch them closely to determine the overall first-quarter performance of the S&P 500.
Clearly, the stock market rally is still being driven by revenue and profit growth from the megacap tech companies.
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Matthew Benjamin has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
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