The first quarter was a blockbuster for stocks. First-quarter earnings could notch a big win, too.
The S&P 500 reached 22 record closes in the first quarter, putting it up more than 10% for the first three months of the year. That’s only the 11th time that the index has rallied more than 10% in the first quarter since 1950.
Many of the same factors that propelled investor optimism, like encouraging economic data, is also fueling high expectations for corporate earnings, particularly for the highflying tech sector. Big banks kick off first-quarter earnings at the end of the week, and while there are likely to be some pockets of weakness, companies may be able to largely live up to investors’ hopes.
Analysts are certainly upbeat about big tech. As DataTrek Research co-founder Jessica Rabe notes, all of the Magnificent Seven megacap tech companies except Apple and Tesla have seen consensus expectations jump — not only for the first quarter, but for this year and next as a whole.
According to Rabe, over the past 90 days analysts have increased their first-quarter earnings-per-share estimates for the Magnificent Seven by 5.5% — a figure that jumps to more than 10% when excluding Tesla. For the year as a whole, analysts’ estimates for the group have increased well over 3% for 2024 and 2025.
Rabe notes that that contrasts with the S&P 500 as a whole, as analysts have cut their estimates for the first quarter by about 2.7%, and have left their expectations for this year and next largely unchanged.
“Even though rates have risen this year, most Big Tech companies are in considerably better fundamental shape than the S&P 500 as a whole,” she wrote.
Given that the Magnificent Seven, again save Apple and Tesla, are up double-digits year to date, that performance and higher consensus pressures them to deliver this coming earnings season.
Yet they — and other big companies — may be up to the task.
Wolfe Research Chris Senyek notes that investors should be wary the market could get choppier going forward than it was in the first quarter, given factors like rising oil prices and uncertainty around the timing of interest-rate cuts.
Nonetheless he doesn’t “see a sustained downturn unless the market starts to anticipate meaningful economic and earnings-per-share disappointments ahead.”
Wolfe is still forecasting full-year 2024 earnings per share of $245 for the S&P 500 as a whole, a hair ahead of the $244 consensus, and Senyek anticipates “another quarter of very solid results and management guidance during first-quarter earnings season.”
Furthermore, it isn’t just tech-propelling profitability. He notes that companies in the semiconductor and equipment, auto, financial, and consumer-services industries have seen upward earnings revisions — and early cyclicals tend to lead in this way when the economy is accelerating.
As for DataTrek’s Rabe, she notes that as long as big tech stocks “keep delivering on earnings results, most of these stocks should continue to outperform and drive the S&P 500 higher given their outsize weightings in the index. We think investor confidence in their underlying fundamentals should continue to support Big Tech names better than most large/super cap alternatives even if we get incremental interest rate volatility.”
To paraphrase Lucy Maud Montgomery, author of “Anne of Green Gables,” nothing seems impossible in the spring. That includes hope that when it comes to 2024’s winning streak, the bloom isn’t off the rose yet.
Write to Teresa Rivas at teresa.rivas@barrons.com