Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Chief Investment Strategist
This week delivered the first batch of technology earnings from Tesla (can we even call technology any longer?), Meta, Alphabet, and Microsoft. From the physical worlds we also got results from Caterpillar, Exxon Mobil, and Chevron. Below are our key takeaways:
Our US earnings scorecard for Q1 2024 shows the Q1 results so far from the largest US companies in each sector. The average revenue growth among those that have reported is 6% YoY and the average EPS growth is 19% YoY. There is nothing in the Q1 earnings so far that makes us negative on US equities from an execution and outlook perspective. The issue with US equities is valuation which is higher compared to European equities which makes the latter more interesting despite a lower future growth potential.
As the scorecard shows the three biggest revenue and earnings surprises have been:
The robust underlying growth in the US economy that we expect will continue throughout the rest of the year is supporting revenue and earnings growth among companies. Sell-side analysts have consistently increased their earnings estimates this year with the 12-month forward EPS estimate on S&P 500 now at $250 per share compared to the actual 12-month EPS of $223 reflecting expected 12% earnings growth over the next year. The forward estimate on earnings means that the S&P 500 is valued at 20.2x forward earnings.