As the third quarter earnings reports for the S&P 500 are nearly complete, the index is on track for an impressive earnings growth rate of 13.4%, according to analysis by FactSet’s John Butters. The reporting season has revealed that a substantial 83% of companies have achieved positive earnings surprises, but it is the revenue growth that has garnered particular attention this quarter.
S&P 500 companies are reporting the highest revenue growth in three years, with the current blended rate sitting at 8.4%. If this trend continues, this would mark a notable uptick from Q3 2022 when the index recorded a revenue growth rate of 11%. Key sectors driving this growth include Health Care, Financials, and Consumer Discretionary, with notable contributions from major players like Cardinal Health, Morgan Stanley, Ford, Amazon, and Tesla.
While the overall earnings growth remains strong, challenges have emerged, particularly among the technology sector’s high-performers. The “Magnificent Seven,” which includes Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia, have collectively reported an earnings growth rate of 18.4% for the third quarter. However, this figure represents the lowest growth rate for the group since the first quarter of 2023.
The decline in earnings growth for these tech giants is largely attributed to a significant earnings per share (EPS) miss reported by Meta Platforms, where actual figures fell far short of expectations ($1.05 compared to $6.72). Despite this setback, four companies from the “Magnificent Seven”—Nvidia, Alphabet, Amazon, and Microsoft—remain among the top seven contributors to the overall earnings growth for the S&P 500 this quarter.
The mixed results highlight a complex landscape for investors as they assess the ongoing performance of key sectors and companies in the index. While the revenue growth marks a bright spot, the slowing earnings growth among leading technology firms may prompt further scrutiny in future quarters.
