US Stocks Expected to See Double-Digit Earnings Growth in Q4

US stocks performed strongly in Q3 and experts now predict earnings will rise over 10% this year and that the trend will continue into 2025.​

Setting New Records

Benchmark US stock index S&P 500 reached its fourth consecutive quarterly gain in Q3 following the Federal Reserve's announcement towards monetary easing and treasury yields on 10-2-year bonds turning positive for the first time in over two years. To conclude the period, the index reached a new record high on the last day of the quarter, registering a total return of over 22% year-to-date - the strongest performance since 1997. This naturally sets relatively high standards that must be met, and continued momentum will rely on corporate earnings matching this pace of growth.

Despite the latest employment and inflation figures somewhat slowing expectations around the Fed's planned pace of easing, indices continue to rise, with the S&P 500 and Nasdaq both reaching new records on Monday despite the public holiday. Strong Q3 earnings from major US banks, as reported on Friday, combined with renewed interest in technology driving Nvidia to another record high, helped propel the markets forward. The gains were widespread as strong results in financial stocks in the Dow Jones were viewed as an indicator that the US economy was achieving the much-hoped-for "soft landing."​

Can Momentum be Sustained?

While analysts broadly agree that company earnings will continue to grow, there is an unusual disagreement over the level of growth. Analysts forecast average earnings growth of around 4.2% for the top 500 US companies in Q3, a substantial decrease from their earlier forecast of 7% for the year. Meanwhile, company CEOs are guiding towards aggregate earnings growth of 16% for the same period. It is normal for executives to be more optimistic than analysts, however the difference between these forecasts is unusually large.

Traders seem to be siding with the CEO forecasts, perhaps hoping for a repeat of Q1, where analyst forecasts significantly underestimated actual earnings growth. So far, 74% of reported companies have beaten estimates. Earlier in the two-year bull market, concerns focused on gains being limited to technology companies involved in AI. However, the recent market rally has broadened, with 10 of the 11 major sectors posting gains, except energy due to falling crude oil prices. Analysts caution that a correction may be expected after such strong growth but note that continuing low interest rates and rising company profits provide a solid basis for further growth. Talk of a potential recession following a de-inverted yield curve has largely disappeared.​

SPX 500 Near Critical Junction

The long-term pattern of the S&P500 resembles a rising pennant formation, indicating a potential extension to 5900, as projected by the measured move of the 4800-3500 pullback and the breakout point of 4560. Likewise, the medium-term pullback from 5680 to 5400 in Q3 implies a measured movement projection of 6250. These two levels represent an important potential range until the end of the year unless prices experience weakness at the July peak, resulting in a move towards support at 5280 or the round support of 5000.​

Source: SpreadEx / SPX 500

Key Takeaways

US stocks performed strongly in Q3, with the S&P 500 reaching a new record high on the last day of the quarter and returning over 22% year-to-date. Analysts now predict earnings will rise over 10% for the full year and continue growing into 2025. While the Fed's easing and positive treasury yields helped drive gains, continued momentum will rely on earnings matching the pace of growth. Some analysts caution that markets may see a correction but note that low interest rates and rising profits provide a solid foundation for further growth. Debate continues around whether the rally can be sustained, as CEOs forecast a larger 16% earnings increase than analysts' 4.2%.