Broker Check

Another Solid Earnings Season

February 16, 2024

                Approximately seventy-eight percent of the companies in the S&P 500 have released their fourth quarter earnings reports through February 15th according to Bloomberg. Sales and earnings are respectable so far. Revenues are up 3.53% and earnings have grown 4.96%. While growth has not been spectacular, it has been better than expected. Revenues surprised 1.21% to the upside. This flowed to the bottom line with earnings 7.44% better than analysts’ estimates quarter-to-date.

                Eight of the eleven GICS sectors showed positive earnings growth in the quarter. Materials and energy saw earnings decline, but that is positive for the rest of the S&P 500 and the economy as the fall in earnings reflected a drop in commodity prices. Health care’s earnings declined, but several large companies had material one-time charges that did not reflect the robust underlying business trends. Health care sector sales have risen 7.86% with about eighty-four percent of companies reporting. In contrast, energy sector revenues fell 11.05%, while materials sector revenues dropped 5.55% quarter-to-date.

                The market generally rewarded companies that reported earnings and revenue beats compared to expectations, while those that missed expectations usually fell. This is healthy and to be expected. It is a show-me market for outperformers and underperformers alike.

                The S&P 500 is now up 5.45% year-to-date, despite a modest rise in interest rates as of February 15th. The precipitous rise in interest rates in 2022 was bad for stocks as it reflected broad inflationary pressures and a mispriced bond market. Now, the uptick in bond yields is more reflective of a strong economy. While not every recent inflation report has been positive, most show an environment of moderating price increases. Declining inflation coinciding with decent sales and earnings growth is a positive environment for stocks. If it continues, investors can expect more gains in 2024.