SUPERNEWS

Macro

Earnings Beat Estimates by 5.6%, S&P 500 Adjusts Amid Rate Hikes

First-quarter earnings rise 5.6%, beating estimates with 78% of companies surpassing expectations, highlighting a robust economy and consumer resilience.

By Athena Xu

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4/29, 08:59 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
American Express Company
Boeing Company
Caterpillar, Inc.
Chipotle Mexican Grill, Inc.
D.R. Horton, Inc.
Ford Motor Company
General Electric Company
Alphabet Inc.
Goldman Sachs Group, Inc.
JP Morgan Chase & Co.
Kimberly-Clark Corporation
Meta Platforms, Inc.
Merck & Company, Inc.
Morgan Stanley
Microsoft Corporation
Netflix, Inc.
D/B/A Royal Caribbean Cruises Ltd.
Tractor Supply Company
Tesla, Inc.
Waste Management, Inc.
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Key Takeaway

  • Q1 earnings are 5.6% higher than last year, with 78% of companies beating estimates by a wide margin of 9.5%.
  • Consumer resilience and high net profit margins (~11.5%) are key drivers behind strong earnings, despite economic concerns.
  • S&P 500 valuations adjust as P/E ratio contracts from 21.6 to 20.8, reflecting investor caution amid rising interest rates.

Earnings Surpass Expectations Amid Rate Concerns

Despite worries over persistently high interest rates, first-quarter earnings have not only held up but have exceeded expectations, with a 5.6% increase over the same period last year. An impressive 78% of companies reporting have beaten estimates by a wide margin of 9.5%, surpassing the long-term average of 4.2% and the average of the previous four quarters at 7%. Standouts in this earnings season include tech giants like Alphabet, Meta, and Netflix, financial heavyweights Goldman Sachs, JPMorgan Chase, and Morgan Stanley, industrial leaders GE Aerospace and Caterpillar, and Microsoft in the technology sector. This performance underscores a robust economy and job market, propelling earnings expectations for the S&P 500 upwards across all remaining quarters of the year.

Consumer Resilience Fuels Optimism

The resilience of the consumer has played a pivotal role in supporting earnings, with companies across various sectors affirming or even raising their 2024 earnings guidance. Notable mentions include Merck, Ford, Chipotle, Waste Management, and Royal Caribbean. Visa’s CFO, Christopher Suh, and American Express’ CEO, Stephen Squeri, both highlighted stable consumer spending across segments, indicating no significant change in consumer behavior. This consumer strength is further bolstered by high net profit margins, currently at about 11.5%, with expectations to exceed 12% for the rest of the year, showcasing the efficiency and profitability of corporate operations amidst economic uncertainties.

Valuations Adjust as S&P 500 Reacts

The S&P 500 has seen a pullback from its highs, attributed to a contraction in the price-to-earnings (P/E) ratio, despite stable earnings estimates for 2024. This contraction reflects the market's sensitivity to interest rate movements, where higher rates dampen investor willingness to pay for future earnings, leading to a decrease in the P/E ratio from 21.6 at its peak to 20.8. This adjustment underscores the market's vigilance towards inflation and interest rate trends, with past instances showing significant market reactions to yield increases, particularly when the ten-year yield breached the 5% mark last October.

Sector-Specific Dynamics and Global Growth Outlook

The earnings landscape is nuanced, with energy companies benefiting from higher oil prices, significantly impacting S&P 500 earnings estimates for the second quarter. Conversely, sectors like industrials and consumer discretionary face challenges, with companies like Boeing and Tesla seeing downward revisions in their earnings estimates. Despite these sector-specific headwinds, the broader market outlook remains positive, buoyed by a strong jobs market and resilient consumer spending. Corporate commentary from companies like Tractor Supply, Chipotle, D.R. Horton, and Kimberly-Clark emphasizes consumer health and engagement, reinforcing the expectation of sustained economic strength without the immediate threat of a recession.

Street Views

  • Visa’s CFO, Christopher Suh (Neutral on consumer spending):

    "Consumer spend across all segments from low to high spend has remained relatively stable. Our data does not indicate any meaningful behavior change across consumer segments."

  • American Express’ CEO, Stephen Squeri (Neutral on consumer spending):

    "Consumer spending is relatively strong."

  • Nick Raich, Earnings Scout (Neutral on the impact of higher oil prices on earnings):

    "While raised estimates are generally positive, it’s worth noting that most of this improvement is coming from Energy companies due to increased geopolitical risk."

Management Quotes

  • Merck, Ford, Chipotle, Waste Management, and Royal Caribbean:

    (No direct quotes provided but mentioned as having raised guidance.)

  • Tractor Supply’s CEO Hal Lawton:

    "Our customer base remains healthy and engaged."

  • Chipotle's CEO Brian Niccol:

    "Not seeing any [consumer pullback]."

  • D.R. Horton's CEO Paul Romanowski:

    "Homebuyer demand during the spring selling season thus far has been good despite continued affordability challenges."

    • Kimberly-Clark's CEO Michael Hsu:

      "I would characterize the consumer environment overall for us globally, but especially in North America, as resilient."