The S&P 500 is on track for a major earnings boost in Q4 2024, with estimates forecasting a 12.0% year-over-year growth rate. This impressive jump, more than double the 5.8% growth reported in Q3 2024, would represent the highest earnings growth since Q4 2021. But what’s behind this anticipated surge? Let’s break it down.

Who’s Leading the Charge?

The projected growth is widespread, with eight of the eleven S&P 500 sectors expected to report year-over-year earnings growth in Q4 2024.  

Six sectors are positioned to achieve double-digit growth, each with its own unique drivers:

1. Financials (38.9%):  This sector is experiencing a resurgence, largely fueled by a rebound in banking performance.  Favorable interest rate environments, loan growth, and a decline in loan loss provisions are all contributing to this positive trend.
2. Communication Services (20.7%):  This sector is being propelled by the continued strength of interactive media and services.  Companies in this space are benefiting from increased digital advertising revenue, strong user engagement, and the growth of subscription-based services.
3. Information Technology (13.9%):  The ongoing global demand for semiconductors is a key driver of growth in this sector.  Companies involved in the design, manufacturing, and distribution of semiconductors are seeing strong revenue growth and improved profitability.
4. Utilities (12.9%):  This sector benefits from stable demand, as electricity and gas services are essential for consumers and businesses.  Regulatory support and infrastructure investments are also contributing to earnings growth in this sector.
5. Health Care (12.6%):  Growth in pharmaceuticals is a major contributor to the health care sector’s strong performance.  New drug approvals, increased demand for existing medications, and rising healthcare spending are all supporting earnings growth.
6.  (12.5%):  This sector is closely tied to consumer spending, which remains robust.  Strong retail sales, particularly in e-commerce, and increased demand for discretionary goods and services are driving earnings growth.

Industry Influencers

At the industry level, five industries are expected to be the primary catalysts for this earnings growth:

 1. Banks (181%)

A significant rebound is anticipated in the banking industry, largely due to favorable comparisons with Q4 2023, which was impacted by one-time charges related to FDIC special assessments. These assessments, levied on banks to replenish the Deposit Insurance Fund, significantly impacted earnings in the year-ago quarter.  Major banks like Truist Financial, Citigroup, Bank of America, JPMorgan Chase, and Wells Fargo are expected to lead this growth, driven by higher net interest income, loan growth, and improved credit quality.

2. Semiconductors & Semiconductor Equipment (34%)

 The global semiconductor shortage has highlighted the critical role these components play in various industries, from consumer electronics to automotive.  Continued strong demand for semiconductors is driving growth in this industry, with companies like NVIDIA, Micron Technology, and Broadcom leading the charge.  These companies are benefiting from increased sales volumes, higher average selling prices, and ongoing investments in research and development.

3. Pharmaceuticals (64%)

Similar to banks, the pharmaceutical industry is experiencing a rebound due to easier comparisons with Q4 2023, when several companies incurred significant one-time charges related to legal settlements, restructuring costs, and impairment charges.  Merck & Company, Eli Lilly & Company, and Pfizer are predicted to be the top contributors, driven by strong sales of existing drugs, new drug approvals, and growth in emerging markets.

4. Interactive Media & Services (25%)

The digital advertising market continues to expand, driven by the growth of online platforms and mobile devices.  Companies in the interactive media and services industry are benefiting from this trend, with increased revenue from advertising, subscriptions, and other digital services.  Alphabet and Meta Platforms Technology are expected to be the top contributors, driven by their dominant market share and continued innovation in advertising technology and user engagement.

5. Broadline Retail (48%)

The rise of e-commerce and the resilience of consumer spending are fueling earnings growth in the broadline retail industry.  Companies like Amazon.com, with its vast online marketplace and logistics network, are well-positioned to capitalize on these trends.  Increased online sales, expansion into new product categories, and growth in subscription services are expected to drive earnings growth in this industry.

 The Bigger Picture

While Q4 2024 is poised for strong earnings growth, it’s important to maintain a balanced perspective.  

Analysts remain optimistic about the earnings outlook for the S&P 500, with double-digit growth predicted to continue through all four quarters of 2025. However, we should carefully consider the factors driving this growth — and of course, remain mindful of potential risks and uncertainties in the economic environment.