Earnings growth for the S&P500 is at 5.8% for Q3 2024. This is below the 5-year average of 10% and below the 10-year average of 8.5%. The Communications Sector led with growth of 23%; then Healthcare +13.6% and Consumer Discretionary +9.3%.   Laggards were Energy at -24%, Materials at -11.4%, and Industrials at -4.2%.

Earnings growth for Q4 2024 is expected to be 12% over last year. Current expectations are that Financials will lead with expected earnings growth of 39%; Communication Services 20.7%, Information Tech 13.9%, and Utilities at 12.9%. Gains in the Financial sector are due primarily to significant FDIC charges that occurred in 2023. If the index can grow earnings by 12%, it will mark the highest year over year growth rate since Q4 2021 which was 31.4%. Current expectations for 2025 quarterly earnings growth are12.7% for Q1, and 12.1% for Q2. 2022 however, did result in missing most earnings targets alongside high inflation and financial markets had significant losses.

Under the hood, the percentage of companies beating revenue estimates was 61%, below the 5-year average of 69% and below the 10-year average of 64%. Regarding revenues, 61% beat their estimates, which is lower than the 5-year average of 69% and below the 10-year average of 64%. While we see record high profit levels, the pace of increase is slowing.

While expected earnings growth for 2025 is +12%, we will be listening for reductions in these forecasts as well as if the ‘surprise’ revenue and earnings figures remain below long-term averages.

We are in a period where earnings expectations are very high, while most recent results have come in below longer-term averages.

Given forward earnings estimates, the forward Price to Earnings Ratio (P/E) is currently 22. This is above the 5-year average of 19.6 and above the 10-year average of 22. Outside of late 2020 Covid recovery, this is the highest forward P/E for the broad market since 1999.

To my eye, it looks increasingly like markets are priced for perfection. As such investors must remain vigilant for if or more likely when, we miss ‘perfection.’