Top 10 Takeaways from Q2 Earnings Season: Market Volatility Rises as Analysts Highlight Key Insights
The Q2 earnings season has been a rollercoaster ride for investors, with a mix of positive and negative surprises leading to increased market volatility. In a recent note to clients, analysts at Societe Generale outlined 10 key learnings from the ongoing reporting season that every investor should be aware of.
1) Strong on EPS Beats, Weak on Sales: While 78% of companies beat earnings per share (EPS) expectations, only 58% exceeded sales expectations, the lowest in five years. Profit margins are the real story here, with analysts noting a relative shock in sales and a surprise in profit margins.
2) Profit Margins Are the Story: Profit margins continue to trend upward, especially in the tech sector. This trend is driving capital expenditure (capex) growth, with tech leading the way in accelerating capex.
3) Beats Rewarded More than Misses Punished: Stocks that beat consensus estimates outperformed by 2.8%, while those that missed underperformed by 1.3%.
4) Sector Beats: Health Care, Materials, and Financials led the pack in beating expectations, while Staples, Energy, and Consumer Discretionary lagged behind.
5) Style Beats: Quality and Growth styles had the most beats in Q2, with High-Risk styles showing the fewest at 68%.
6) 2Q24 Upgraded, 3Q24 Downgraded: EPS estimates for Q2 were up by 1.2%, but Q3 estimates dropped by the same percentage. The overall S&P 500 EPS is on track to reach $240 by year-end.
7) EPS Momentum: Materials and Tech sectors had the strongest EPS momentum, while Energy and Staples underperformed.
8) EPS Breadth: Financials and Tech are leading in EPS upgrades, while Materials and Energy are at the bottom.
9) Six Charts for the Next Six Months: Profit growth is expected to support broader market growth, with the impact of US elections also playing a role in market trades.
10) SG Turning Point Signals Show Upside to the EPS Cycle: SocGen's indicators show positive trends in the global economy, with potential short-term risks flagged by trading signals.
In conclusion, rising profit margins are a bright spot for investors, maintaining the S&P 500 in 'buy-the-dip' territory. Non-recessionary Fed rate cuts should not lead to a de-rating, and there are cyclical opportunities beyond the tech sector in Industrials and Financials.
Overall, investors should pay close attention to profit margins, sector performance, and upcoming market trends to make informed decisions about their investments. Understanding these key insights can help investors navigate the current market environment and potentially enhance their financial outcomes.