We are in the second month of the New Year, but we will not fully close the books on 2024 till the ongoing Q4 earnings season is fully behind us. The focus lately has been on the Mag 7 results that many in the market found to be relatively underwhelming, but that negative view is more likely a reflection of these Tech leaders’ huge AI-centric capex budgets and less about the substance of their earnings power, which continues to be not only enormous but also sustainable.As we have been flagging here all along, the overall earnings picture remains strong and reassuring, with the tone and substance of management commentary adding to confidence in current market expectations of a significant growth ramp-up in 2025 and beyond.Take a look at the first chart below that gives you a big-picture view of corporate profitability.
Image Source: Zacks Investment ResearchThese numbers represent the bottom-up aggregates for the index. In other words, we take the earnings estimates of the sell-side analysts, most of whom contribute their estimates to Zacks. This allows us to create the Zacks Consensus EPS for each stock that we then aggregate to the respective sector and the overall index.As you can see, the expectation is that aggregate 2025 earnings of $2.352 trillion will be up +13.5% from the $2.072 trillion in 2024. This would follow the +7.5% earnings growth in 2024. Please note that had it not been for the drag from the Energy sector, the earnings growth in 2024 and 2025 would be +9.6% and +14%, respectively.Let’s focus on 2025 and drill down where this impressive growth is expected to come from.Unlike 2024, when most of the growth came from the Tech sector, 2025 growth is very broad-based, with 15 of the 16 Zacks sectors expected to have positive earnings growth (the Industrial Products sector is expected to see a -0.1% decline in 2025).If you exclude the Tech sector from the S&P 500 index, total 2025 earnings for the rest of the index would be up +11.9% (vs. +13.5% as a whole).Let’s take a look at how aggregate 2025 earnings estimates have evolved over the past year, which you can see in the second chart below.
Image Source: Zacks Investment ResearchThis chart shows that estimates peaked in July 2024 and have been steadily trending down ever since. But before you fully internalize this negative development on the earnings front, let’s ‘look under the hood’ at the sector level to see if anything unusual is happening there.The third chart below shows how aggregate 2025 earnings estimates for the Energy sector have evolved over the past year.
Image Source: Zacks Investment ResearchMaybe a big part of the negative revisions to aggregate estimates since July 2024 result from the earnings pressure in the Energy sector.The fourth chart below shows the aggregate revisions trend over the past year on an ex-Energy basis.
Image Source: Zacks Investment ResearchThis fourth chart confirms that all of the downtrend in the aggregate numbers was due to the Energy sector, with ex-Energy estimates actually modestly up since last Summer. However, they seem to have started coming down over the past month. It could be a new development or something transitory.The fifth chart below shows the same revisions trend for the Tech sector.
Image Source: Zacks Investment ResearchAs you can see here, the revisions trend for the Tech sector has been very favorable. But as with the ex-Energy picture, there appears to be a modest downtick in estimates over the last few weeks. We will have to monitor it closely to ensure it isn’t the start of a new and unfavorable turn in the overall earnings picture.
Q4 Earnings Season Scorecard
Through Friday, February 7th, we have seen Q4 results from 308 S&P 500 members, or 61.6% of the index’s total membership. Total earnings for these companies are up +13.8% from the same period last year on +5.9% higher revenues, with 77.3% beating EPS estimates and 64.9% beating revenue estimates.The comparison charts below put the Q4 earnings and revenue growth rates relative to other recent periods for the same group of index members.
Image Source: Zacks Investment ResearchThe comparison charts below put the Q4 EPS and revenue beats percentages relative to other recent periods for the same group of companies.
Image Source: Zacks Investment Research
Key Earnings Reports This Week
We have almost 500 companies on deck to report results this week, including 78 S&P 500 members. In addition to blue-chip players like McDonald’s, DuPont, Deere, Coke, CVS, and many others, we also have up-and-coming players like Shopify (SHOP – Free Report) , Lyft (LYFT – Free Report) , DoorDash (DASH – Free Report) , and others reporting results this week.Shopify shares were up following each of the last two quarterly releases and the stock has done really well over the past year, up +37.2% vs. +23% for the S&P 500 index and +37.2% for Amazon. Shopify is expected to bring in 44 cents in EPS on $2.72 billion in revenues, representing year-over-year gains of +29.4% and +27%, respectively.Lyft shares were up big following the last quarterly release on November 6th, but the stock has practically given back all those gains. Lyft shares have done better than Uber over the past year, but have lagged the broader market. The chart below shows the one-year performance of Lyft, Uber, DoorDash, and the S&P 500 index.
Image Source: Zacks Investment Research
The Earnings Big Picture
The chart below shows the Q4 earnings and revenue growth expectations in the context of where growth has been in the preceding four quarters and what is expected in the coming four quarters.
Image Source: Zacks Investment ResearchExcluding the contribution from the Mag 7 companies, Q4 earnings for the rest of the S&P 500 index would be up +8.2% on +4.4% higher revenues.The chart below shows the overall earnings picture on a calendar-year basis, with double-digit earnings growth expected in 2025 and 2026.
Image Source: Zacks Investment ResearchMore By This Author:Mag 7 Members Report Strong Earnings, Double Down On CapExQ4 Earnings Scorecard & Analyst Reports For Alphabet, Blackstone & KLAHow To Make The Most Of Todays Market
