US stocks: Review of financial reports from July to September
2024-11-13
■ Overall performance is good, but the strength of different sectors is significantly differentiated
■ The stock market rally after the uncertainty of the election is eliminated may end, and the market focuses on the feasibility of policy implementation.
As of November 8, 449 companies in the S&P 500 index have released their financial reports for July-September. According to financial information company LSEG I/B/E/S statistics, 76% of the companies announced earnings per share (EPS) that exceeded market expectations. EPS for July-September is expected to increase by 8.6% year-on-year (actual data for companies that have announced, market expectations for companies that have not announced), higher than the market expectation of 5.3% before the release of financial reports in early October. The overall financial report performance is considered good. From the perspective of industry, the earnings growth of sectors such as communication services (CS, 12.3% growth → 25.5% growth), information technology (IT, 15.4% growth → 17.0% growth), and utilities (3.7% growth → 15.6% growth) exceeded expectations. On the other hand, economically sensitive sectors such as materials (-3.2% down → -7.2% down) and capital goods (-2.8% up → -5.7% down) have underperformed expectations. This week and next, retail and semiconductor giants will release their earnings reports one after another, and the market is cautious about them. In particular, on the 20th, the earnings reports of semiconductor giants attracted much attention. Whether the revenue and EPS for August-October and the revenue for November-January can exceed market expectations will reflect the robustness of demand related to artificial intelligence (AI).
Future EPS expectations show that each quarter will grow by more than 10% from October to December (+10.0% year-on-year). In addition, it is expected to grow by 10.0% in 2024 and 14.1% in 2025. The industry growth is mainly driven by sectors such as communication services, IT, and consumer goods, which benefit from expanding AI demand. The steady growth of corporate earnings and the possible interest rate cut by the Federal Reserve (FRB) is expected to support the stock price. However, even though AI-related investments (especially cloud business) grew faster than revenue expansion in the July-September financial reports, concerns about monetization still exist, which may trigger stock price adjustments.
On October 31, the VIX index (closing price), which shows investors' panic, rose to 23.16 at one point, but as the results of the US election became more apparent, the VIX index fell to 14.94 last weekend. After the uncertainty of the election is eliminated, the stock market may reach new highs in the short term. However, it will take time for the tax cut policy to boost stock prices. In addition, the Committee for a Responsible Federal Budget estimates show that the Trump administration's promised fiscal deficit expansion (i.e., stimulus) will have mixed effects (from a minimum of 1.65 trillion to a maximum of 15.55 trillion from 2026 to 2035). Furthermore, tariff increases may trigger inflation concerns, while immigration restrictions may slow the economy and labor market, potentially burdening stock prices. With the new president officially taking office on January 20 next year, the market may gradually feel the uncertainty of the new government's policies, which will become a pressure factor for the stock market.
■ The stock market rally after the uncertainty of the election is eliminated may end, and the market focuses on the feasibility of policy implementation.
As of November 8, 449 companies in the S&P 500 index have released their financial reports for July-September. According to financial information company LSEG I/B/E/S statistics, 76% of the companies announced earnings per share (EPS) that exceeded market expectations. EPS for July-September is expected to increase by 8.6% year-on-year (actual data for companies that have announced, market expectations for companies that have not announced), higher than the market expectation of 5.3% before the release of financial reports in early October. The overall financial report performance is considered good. From the perspective of industry, the earnings growth of sectors such as communication services (CS, 12.3% growth → 25.5% growth), information technology (IT, 15.4% growth → 17.0% growth), and utilities (3.7% growth → 15.6% growth) exceeded expectations. On the other hand, economically sensitive sectors such as materials (-3.2% down → -7.2% down) and capital goods (-2.8% up → -5.7% down) have underperformed expectations. This week and next, retail and semiconductor giants will release their earnings reports one after another, and the market is cautious about them. In particular, on the 20th, the earnings reports of semiconductor giants attracted much attention. Whether the revenue and EPS for August-October and the revenue for November-January can exceed market expectations will reflect the robustness of demand related to artificial intelligence (AI).
Future EPS expectations show that each quarter will grow by more than 10% from October to December (+10.0% year-on-year). In addition, it is expected to grow by 10.0% in 2024 and 14.1% in 2025. The industry growth is mainly driven by sectors such as communication services, IT, and consumer goods, which benefit from expanding AI demand. The steady growth of corporate earnings and the possible interest rate cut by the Federal Reserve (FRB) is expected to support the stock price. However, even though AI-related investments (especially cloud business) grew faster than revenue expansion in the July-September financial reports, concerns about monetization still exist, which may trigger stock price adjustments.
On October 31, the VIX index (closing price), which shows investors' panic, rose to 23.16 at one point, but as the results of the US election became more apparent, the VIX index fell to 14.94 last weekend. After the uncertainty of the election is eliminated, the stock market may reach new highs in the short term. However, it will take time for the tax cut policy to boost stock prices. In addition, the Committee for a Responsible Federal Budget estimates show that the Trump administration's promised fiscal deficit expansion (i.e., stimulus) will have mixed effects (from a minimum of 1.65 trillion to a maximum of 15.55 trillion from 2026 to 2035). Furthermore, tariff increases may trigger inflation concerns, while immigration restrictions may slow the economy and labor market, potentially burdening stock prices. With the new president officially taking office on January 20 next year, the market may gradually feel the uncertainty of the new government's policies, which will become a pressure factor for the stock market.