Consumer Discretionary is leading, Industrials are lagging, and Tech is just fine. The key takeaways from earnings season so far.
KEY TAKEAWAYS
MY HOT TAKES
Low and slow—the way to go. So, here we are, coming into the last 20% of S&P500 earnings, and it has been an interesting earnings season so far. Not that it was easy to focus on it given the noisy tape over the past few weeks. Inflation? The Fed? I’ve said my piece already. Inflation is sticky and the President’s apparent agenda is kind of inflationary. The Fed is doing what it loves to do best—nothing. There is plenty of Washington DC noise to distract us, but I won’t treat you to any of that today.
Today, I want to take a step back and look at corporate earnings. You know, the ONLY way we can find out if the companies we invested in are doing what they promised—keep our investments on track for success. Oh yeah, that. Let’s start from the top.
So far, 364 of the S&P500 companies has announced Q4 earnings and, on average, they beat Sales and EPS estimates by 1.07% and 6.5%, respectively. Ok, not bad. The biggest earnings beat sector to date is Consumer Discretionary (15.3%) with its biggest winner being Amazon, which beat EPS estimates by 25.2%. While we are on Consumer Discretionary, Mag-7 member Tesla missed on both Sales and EPS by -5.5% and -3%, respectively (Ford killed it, surprising by 21.9% 😉). The biggest EPS loser sector to date, is Industrials (-1.2%), which was heavily weighted down by its top loser Boeing, which missed by -92.4%.
Now, I know that the media loves talking about earnings beats and misses. They are important, but for long-term investors, a better gauge of your future success is EPS growth. Technically your stock can’t go up unless multiples expand, or earnings grow. The former is safer than the latter, though multiple expansion is OK, if supported by a strong thesis. So, GROWTH—got it? With growth, faster is better, but consistent EPS growth outclasses growth spikes. That makes consistent growth (also known as EPS growth quality) the top dog. Why, because anyone can experience an anomalous growth quarter for one reason or another, but only solid companies can deliver consistent growth quarter after quarter. So, let’s look at growth!
So far, the S&P 500 saw Sales and EPS growth of 5.1% and 11%, respectively. That’s not too bad, considering that the prior quarter’s EPS grew by a lower 6.5% gain. Consumer Discretionary logged the greatest EPS growth of 31% thanks to top producer Amazon, which saw its EPS grow by 84.3%. The Materials Sector topped the loser board with a -33% year over year decline. Nucor experienced, the sector’s largest decline, despite beating estimates by 87.7%; low expectations, I guess. Pro tip: we should probably keep an eye on this, as well as its struggling peer Steel Dynamics, as their prospects could change if Trump continues to pursue steel tariffs.
Now we know the extremes, but have you noticed something peculiar? No tech! Where is the tech sector? Well, the tech sector, which technically (🤣) doesn't include social media giants, grew sales and earnings by 7.8% and 11.4%, respectively. Tech’s biggest EPS growth winner is Monolithic Power (42%), and its biggest loser is outsource-manufacturer Jabil (-23%). Alphabet and Meta are in the Communications Sector, they logged EPS growths of 31% and 50.5%, respectively. That brings us to the Mag-7, 6 of which have announced so far. That collection of rockstars grew sales and EPS by 9.87% and 25.5%, respectively. Amazon was the winner to date, but phenom NVIDIA has yet to announce.
Where does this leave us? Since JPMorgan Chase officially, unofficially kicked off earnings season on January 15th, the S&P500 has climber by 1.79%, largely driven by the Financials that were the first to announce. After its initial gain, the index essentially traded sideways in a choppy pattern. So, despite the rather solid showing, the markets have responded with a “meh.” 🤷♂️🤷♀️ Why? Because market expectations are high after last year’s solid performance. Long-term investors should be cheering this earnings season—so far. However, based on some of the guidance we have been receiving, next earnings season may not be so exciting, but don’t worry, we have until April 11th to figure it out. Please continue to attempt to filter out the growing wall of noise and focus on signals.
YESTERDAY’S MARKETS
Stocks struggled through yesterday’s session, closing mostly down, pinned under the weight of the hotter-than-expected consumer inflation numbers. Inflation is inching higher, mostly from recent jumps in food inflation, leaving the Fed with little to do but…nothing, and the Chairman Powell said as much in his testimony on Capital Hill. Yields on 10-year Treasury Notes climbed by 8 basis points in response to a hot CPI print putting upward pressure on borrowing rates for mortgages… and the Government.
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