What is Driving the Higher Expected Earnings Growth for the S&P 500 for Q4 2024

The S&P 500 is reporting earnings growth of 5.8% for Q3 2024. However, for Q4 2024, the estimated earnings growth rate for the index is expected to more than double to 12.0%. If 12.0% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q4 2021 (31.4%). What is driving the expected improvement in earnings growth in Q4 2024?

At the sector level, eight of the eleven sectors are predicted to report year-over-year earnings growth in Q4 2024. Six of these eight sectors are expected to report double-digit earnings growth for the quarter: Financials (38.9%), Communication Services (20.7%), Information Technology (13.9%), Utilities (12.9%), Health Care (12.6%), and Consumer Discretionary (12.5%).

At the industry level, the five industries that are expected to be the top contributors to earnings growth for the quarter are Banks (181%), Semiconductors & Semiconductor Equipment (34%), Pharmaceuticals (64%), Interactive Media & Services (25%), and Broadline Retail (48%). Excluding these five industries, the estimated earnings growth rate for the S&P 500 for the fourth quarter would fall to 1.6% from 12.0%.

The Banks industry is projected to be the largest contributor to earnings growth for the S&P 500 for the fourth quarter. A large number of companies in this industry are benefitting from easy comparisons to weaker (GAAP) earnings reported in the year-ago quarter due to significant charges related to FDIC special assessments and other items that were included in their GAAP EPS. At the company level, Truist Financial ($0.88 vs. -$3.85), Citigroup ($1.21 vs. -$1.16), Bank of America ($0.78 vs. $0.35), JPMorgan Chase ($3.88 vs. $3.04), and Wells Fargo ($1.33 vs. $0.86) are predicted to be the top contributors to earnings growth for the Banks industry for the fourth quarter.

The Semiconductors & Semiconductor Equipment industry is projected to be the second-largest contributor to earnings growth for the S&P 500 for the fourth quarter. At the company level, NVIDIA ($0.84 vs. $0.52), Micron Technology ($1.73 vs. -$0.95), and Broadcom ($1.46 vs. $1.10) are predicted to be the top contributors to earnings growth for the Semiconductors & Semiconductor Equipment industry for the fourth quarter.

The Pharmaceuticals industry is expected to be the third-largest contributor to earnings growth for the S&P 500 for the fourth quarter. Similar to the Banks industry, a number of companies in this industry are benefitting from easy comparisons to weaker (non-GAAP) earnings reported in the year-ago quarter due to various charges that were included in their non-GAAP EPS. At the company level, Merck & Company ($1.84 vs. $0.03), Eli Lilly & Company ($5.47 vs. $2.49), and Pfizer ($0.48 vs. $0.10) are predicted to be the top contributors to earnings growth for the Pharmaceuticals industry for the fourth quarter.

The Interactive Media & Services industry is expected to be the fourth-largest contributor to earnings growth for the S&P 500 for the fourth quarter. At the company level, Alphabet ($2.11 vs. $1.64) and Meta Platforms Technology ($6.72 vs. $5.33) are predicted to be the top contributors to earnings growth for the Interactive Media & Services industry for the fourth quarter.

The Broadline Retail industry is expected to be the fifth-largest contributor to earnings growth for the S&P 500 for the fourth quarter. At the company level, Amazon.com ($1.47 vs. $1.00) is predicted to be the top contributor to earnings growth for the Broadline Retail industry for the fourth quarter.

It is interesting to note that analysts believe double-digit earnings growth will continue for the S&P 500 through all four quarters of 2025. The estimated earnings growth rates for Q1 2025 through Q4 2025 are 12.7%, 12.1%, 15.3%, and 17.0%.

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