It’s still very early in third quarter earnings season, but I think we can already see a pattern.
First, for the quarter, it looks like a large percentage of companies will report earnings above analyst estimates.
Second, CEOs are pushing out their worries about revenue and earnings growth into 2025. I see that in the comments from Jamie Dimon at JPMorgan Chase (JPM) and other big bank CEOs after their companies’ earnings reports.
First point first. There’s an unusually large divergence in profit outlook this season: while analysts have cut forecasts, company guidance points to another strong quarter. According to Bloomberg, analysts expect S&P 500 companies to report a 4.2% increase in third-quarter earnings versus a year earlier, down from an expected 7% forecast increase in mid-July.The companies themselves, however, are guiding investors to expect an increase of about 16%.
Companies don’t have to deliver that full 16% to beat Wall Street expectations.
Gina Martin Adams, chief equity strategist at Bloomberg, said the dichotomy was “unusually large,” and the significantly stronger outlook suggests “companies should easily beat expectations.” I’d note that in the first quarter analysts were looking for 3.8% year over year earnings growth and companies delivered 7.9%
Second point second. In its earnings report last week JPMorgan Chase easily cleared the lowered bar after it delivered a surprise gain in net interest income for the third quarter and raised its forecast for the key revenue source.
CEO Dimon did present a catalog of his worries for 2025. But worries for 2025 aren’t worries for the fourth quarter of 2024.
I continue to believe that we’ll finish 2024 with two strong quarters of earnings growth and that the big question mark remains 2025.
I’m not selling on the likely positive earnings trend in the last two quarters of 2024.
But I am thinking about whether or not it would be smart to get ahead of January guidance for 2025.
