As investors await election results, the focus in October was on corporate earnings. According to FactSet, 70% of S&P 500 companies reported Q3 2024 earnings results through October 31st. Earnings reports can create big swings in stock prices as investors weigh in on individual companies’ results and outlook. Revenue and earnings estimates are analysts’ forecasts of a company’s sales and profit for a certain period. When actual earnings results are announced, they’re compared to these estimates; the difference is known as a “surprise.” Positive surprises can boost stock prices, while negative surprises can lower them. These estimates and surprises also impact how a company is valued. Positive surprises may increase the stock’s valuation, as they signal better-than-expected growth. On the other hand, negative surprises can lead to lower valuations as investors adjust for weaker growth.
Of the S&P 500 companies that have reported Q3 2024 results, 75% have reported earnings per share above estimates, in line with the historical averages. Eight of the eleven sectors have reported year-over-year growth, led by Communication Services and Health Care. In terms of revenues, 60% of S&P 500 companies have reported actual revenues above estimates, and nine sectors have reported year-over-year revenue growth.
Corporate earnings weren’t the only announcement in October. U.S. real GDP increased at a 2.8% seasonally adjusted annual rate, reflecting strong economic growth. Robust consumer spending, exports, defense spending, and nonresidential fixed investment fueled growth in the quarter.