We are also in the midst of the annual Jackson Hole Economic Policy Symposium, with all eyes on Federal Reserve Chairman Jerome Powell’s speech today at 10am ET. Based on the latest Fed meeting minutes released Wednesday, expectations are for a dovish tone pointing to a rate cut at the FOMC’s September meeting.
This week, we are taking a look at Q2 earnings, which, as the reporting season comes to a close, have been generally positive.
Q2 Earnings Update
With more than 93% of companies reporting, the blended growth rate now stands at 10.9%, according to FactSet. This is significant given that forecasts for the quarter were at 8.9% as of June 30. The 10.9% growth rate represents the strongest quarter of year-over-year growth since Q4 2021 at 31.4%.There are several positive takeaways from this earnings season, with one being the broad-based nature of earnings growth. Unlike previous quarters, earnings were more widespread across sectors.
Nine out of the 11 sectors in the S&P 500 reported positive growth, with five sectors—Consumer Discretionary, Financials, Health Care, Information Technology and Utilities—posting double-digit year-over-year growth. This broader growth is a positive development. It signals a stronger foundation for overall economic growth, particularly as the market has been anticipating earnings expansion beyond just the Technology and Communication sectors throughout 2024.
The consumer sector also appears to have rebounded over the summer. Earlier concerns about potential weakness among lower-income consumers seem to be easing. Leading retailers like Walmart and Target reported impressive results, indicating resilience among their customer bases despite higher costs.
Target exceeded consensus estimates, raised its full-year guidance, and posted its first same-store sales gain in five quarters, noting that “discretionary sales trends continued to improve meaningfully."
Walmart had an equally impressive quarter, beating estimates and raising guidance. Finance chief John David Rainey told investors, “So far, we aren’t experiencing a weaker consumer overall,” while adding that the company has “not seen any additional fraying of consumer health.”
This represents a positive shift from Q1 earnings commentary, where both companies had warned of changing and more cautious consumption patterns among lower-income consumers. The latest commentary suggests encouraging developments in the underlying health of the U.S. consumer.
Another important note is that companies seemed less concerned about an impending recession. According to FactSet, only 28 S&P 500 companies mentioned the term "recession" in their Q2 earnings calls, well below the 10-year average of 60 mentions. For context, the highest number of mentions over the last five years occurred in Q2 2022, when 234 companies (~47% of the index) cited the term.
The key takeaway from our perspective is that Q2 was a favorable reporting season. However, also know that these results largely confirm what we already suspected: the first half of 2024 was a generally positive environment from both a macro and microeconomic perspective.
As for the remaining four months of 2024, predicting the outcome is more challenging. While there was strong economic momentum through the first half of the year, the second half appears more uncertain. The labor market is weakening, inflation is decreasing, geopolitical risks are heightened, monetary policy is uncertain, the U.S. election cycle has become unpredictable, and we've experienced brief but intense periods of market volatility.
We continue to advise our clients to remain disciplined in their approach and ensure their asset allocation and risk tolerance align with their long-term goals.
