There’s growing doubt on Wall Street about fourth quarter and 2025 earnings growth.
The indicator known as earnings-revision momentum—-the ratio of upward versus downward revisions to analysts’ forecast per-share earnings over the next 12 months for the Standard & Poor’s 500 stocks—-has slumped into negative territory and is hovering near its second-worst reading in the past year, according to Bloomberg.
Stocks are being “set up for a reversal,” said Gina Martin Adams, chief equity strategist at Bloomberg said. “The big issue heading into 2025 is whether the Fed will be able to continue easing policy and if earnings momentum will favor laggards outside of Big Tech.”
Analysts still expect the S&P 500 to deliver its second-best period of profit growth since early 2022 in the third quarter as earnings growth expands beyond Big Tech. With roughly 90% of companies in the index having already reported third quarter earnings, S&P 500 profits are projected to climb by 8.5% through September from a year ago. That’s double the 4.2% estimate at the start of earnings season.
That’s the good news.
But…
Although analysts still expect profits to grow for a fifth-straight quarter in the fourth quarter of 2024, they have marked down EPS estimates for the next 12 months after executives delivered mixed outlooks or held back on offering guidance amid uncertainty over Federal Reserve interest-rates cuts, weakness in China’s economy and questions about fiscal policy in Washington.
Wall Street sees S&P 500 companies earning around $274 per share next year, slightly below projections of roughly $277 a year ago.
Since mid-October, analysts have lowered year-ahead projections by the most for energy and materials companies as crude prices slump. Excluding energy, which skews estimates due to lower commodity prices and ebbing inflation, S&P 500 earnings are forecast to grow by about 11% year-over-year in the third quarter.
And at near 6,000 on the S&P 500 stocks are sufficiently expensive to need strong earnings growth. At 22 times future 12-month earnings estimates, the index’s valuation is above its long-term average of 18.4 over the past decade.
If only we could cut the size of the federal government by > 10%, likely we could cut it by 50% and no one would notice. Anyway, if government went from un-sustainable deficits and over-regulation. To a surplus and paying down the debt and unleashing companies for growth. Interest rates on treasuries would likely fall and the rates of products attached to them as the government would be on a sustainable fiscal path. Haha its never going to happen, government spending only goes one way, up, and freedom’s are slow regulated away till everything is illegal and the government is the economy….. Thats the direction were heading in.