Goldman Sachs Forecasts Q4 2024 Earnings Growth
As we approach the Q4 2024 earnings reporting season, the anticipation in the financial markets is palpable. Analysts project an impressive 8% year-over-year (YoY) growth in earnings per share (EPS) for the overall S&P 500, while the median company is expected to exhibit a 6% increase. This projection highlights the robust health of corporate earnings despite rising expectations.
Insight Into Earnings Reporting
Goldman Sachs strategists express optimism about the forthcoming earnings reports. They predict that companies will demonstrate solid growth during the quarter. However, they caution that the extent of EPS surprises may be tempered due to elevated consensus estimates that have been set higher compared to previous quarters.
The forecasted 8% YoY earnings growth is anticipated to be fueled by a 4% increase in sales and a significant 31 basis point expansion in profit margins, which would bring the overall profit margin to 11.5%. For the median S&P 500 stock, a 6% EPS growth is projected, indicating a healthy environment for corporate profitability.
High Expectations for Earnings Performance
The analysts at Goldman note that these consensus expectations rank among the highest since Q4 2021, with only the upcoming Q2 2024 showing a more positive outlook at a staggering 9% expected YoY EPS growth. Historically, the S&P 500 has experienced earnings growth that surpasses consensus projections by an average of 4 percentage points in the last eleven quarters, showcasing the potential for positive surprises.
Goldman strategists are particularly focused on three prevalent themes this earnings season. They suggest that these themes could provide valuable insights into the earnings outlook for 2025. The themes relate to corporate sales growth, the potential impact of a changing administration in Washington, D.C., and the persistent profitability of large-cap technology companies, which have been leading earnings growth in recent years.
Sector-Specific Earnings Trends
When analyzing sector performance, it becomes evident that certain areas are expected to shine more than others. The Communication Services and Information Technology sectors are projected to report the strongest growth in earnings, reflecting the ongoing demand for digital solutions and connectivity. Meanwhile, the Financials sector anticipates a 13% increase in profits, indicating a positive outlook for financial services.
Conversely, the Energy sector is likely to experience a considerable decline in earnings. This expected slump is largely attributed to an 11% decrease in average Brent oil prices compared to the third quarter of the previous year, illustrating the challenges faced by energy companies amid fluctuating commodity prices.
Revisiting Forecasts Post-Reporting Season
In light of these developments, Goldman strategists plan to reassess their S&P 500 earnings forecasts after the conclusion of this reporting season. Currently, they foresee an EPS growth of +11% for 2025, equating to $268, which aligns closely with the consensus among many leading strategists. They have stated, 'We currently view risks around our earnings forecast as balanced.'
Looking further ahead, the team at Goldman maintains an optimistic S&P 500 target of 6,500 by the end of 2025, suggesting a 12% increase that they believe will be primarily driven by continued earnings growth across various sectors.
Frequently Asked Questions
What is the expected EPS growth for Q4 2024?
The expected EPS growth for Q4 2024 is projected to be 8% year-over-year for the S&P 500, with a 6% growth for the median constituent.
What reasons contribute to the earnings growth forecast?
The forecasted growth is driven by a 4% increase in sales and an expansion in profit margins, which is expected to reach 11.5%.
Which sectors are expected to perform best?
The Communication Services and Information Technology sectors are forecasted to deliver the strongest earnings growth, with Financials also showing positive trends.
What challenges does the Energy sector face?
The Energy sector is projected to face significant earnings declines, primarily due to an 11% decrease in Brent oil prices compared to previous quarters.
What is Goldman Sachs' EPS growth prediction for 2025?
Goldman Sachs currently projects an EPS growth of +11% for 2025, aligning with broader market expectations.
