Earnings Season; Societe Generale analysts have highlighted 10 learnings from the Q2 season, highlighting both positive and negative surprises, causing increased market volatility.
High EPS, Low Sales
- 78% beat EPS, above average.
- Only 58% exceeded sales expectations, lowest in five years.
- Sales shock, profit margins surprise.
Profit Margins Steal the Spotlight
S&P 500 Profit Margins Uptrend
- Tech sector profits reach new highs.
- Non-tech profits also increase.
- Margins lead capital expenditure growth by 4-5 quarters.
- Tech driving capex acceleration.
Wins Celebrated More Than Losses Penalized
- Overpassed consensus estimates: 2.8% outperformance.
- Missed estimates: 1.3% underperformance.
Sector Beats Overview
- Health Care, Materials, Financials lead.
- Staples, Energy, Consumer Discretionary lagged.
Q2 Style Beats:
- Quality and Growth styles dominate.
- High-Risk styles have fewest beats (68%).
2Q24 Upgraded, 3Q24 Downgraded
Societe Generale’s Q24 EPS Estimates
- Q2 EPS up 1.2%, Q3 down by the same percentage.
- S&P 500 EPS expected to reach $240 by year-end, close to bank’s estimate.
- Season has not significantly impacted year-end expectations.
EPS Momentum Analysis:
- Materials and Tech sectors show strongest momentum.
- Energy and Staples show poor performance.
EPS Breadth Analysis:
- Eight stocks have upgraded EPS in the past four weeks.
- Ten stocks have downgraded EPS.
- Financials and Tech lead in upgrades.
- Materials and Energy bottom.
SocGen’s Six Charts for Six Months:
- Profits supporting market growth rotation.
- US elections impacting market trades.
- Nasdaq-100 profit growth expected to slow.
- S&P 500 ex-Nasdaq-100 profit growth picking up.
Societe Generale’s SG Global Cycle Signals:
- SG Global Cycle indicator shows upturn phase for five quarters.
- SG US consumer composite consolidates in positive territory for past five months.
- Trading cross-asset momentum signal flags short-term risk.
- Rising profit margins bolster ongoing profit narrative.
- Non-recessionary Fed rate cuts should not lead to de-rating.
- Identified cyclical opportunities beyond technology sector, particularly in Industrials and Financials.