U.S. company profits continue to impress.
Earnings season is in the home stretch, with more than 90% of the companies in the S&P 500 index having announced their second-quarter earnings results by now.
The good news: Those companies’ profits grew by 9.2% on average compared to the same quarter last year—the highest year-over-year growth rate in some time (see the chart.) What’s more, Nvidia will report its earnings later this month. Strong numbers from the marquee chipmaker could boost that result.
S&P 500 Second-Quarter Earnings Growth
Source: Bloomberg, calculations by Horizon Investments, as of August 13, 2024. Past performance is not indicative of future results. Indices are unmanaged and do not have fees or expense charges, both of which would lower returns. It is not possible to invest directly in an unmanaged index.
That said, another metric paints a slightly less rosy picture. Of the companies whose second-quarter earnings grew more than Wall Street’s estimates—that is, they delivered positive earnings surprises—their actual results outperformed expectations by just 4.1% on average.
That’s significantly down from the 9.1% average surprise rate we saw last quarter—and it’s the lowest level of outperformance since early 2022.
The upshot: While overall growth remains robust, investors may have gotten slightly overconfident about companies’ ability to keep delivering outsized earnings growth. We’ll be watching to see if slower consumer demand and sales growth crimps profits going forward—or whether a now-expected rate cut by the Fed adds more fuel to corporate America’s tank.
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