The week in review
- Headline CPI rose 2.5% y/y, matching expectations
- PPIs came in slightly above expectations at 0.2% m/m
- ECB cut rates by 25bps to 3.5%
The week ahead
- FOMC meeting
- Retail sales
- Housing starts
Thought of the Week
It’s all relative when it comes to growth. S&P 500 4Q earnings are expected to grow by 16% y/y and 14% ex-Magnificent 7. However, it’s important to put these numbers in the context of the 2022 earnings recession. This week’s chart looks at each sector’s 2Q24 and 4Q24 earnings relative to the maximum EPS achieved between 4Q21 and 1Q24. In every sector except Financials, 2Q24 earnings, the blue bar, were still below their previous maximum, represented by the grey bar.
Among Tech and Mag 7 companies, the base rate effect is especially pronounced. These names have seen extremely strong growth over the past few quarters, but they also experienced the largest contractions in 2022. Tech sector earnings had a maximum drawdown of 17% and didn’t fully recover until 4Q23. Similarly, Mag 7 earnings fell 40% from 4Q21 to 2Q22, and again, didn’t fully rebound until the end of 2023. Looking ahead, the large gap between 2Q24 reality and 4Q24 expectations will be a high hurtle to beat.
Tech got an early boost from AI enthusiasm, but other sectors are on the up and up as well. This past earnings season, the S&P 500 ex-Mag 7 saw positive EPS growth for the first time in five quarters, with 8 out of 11 sectors seeing gains. But the outlook for earnings growth is about more than just a recovery. If the economy sticks the soft landing, it should make for a supportive environment for many more than just 7 companies.
Chart of the Week: Source: FactSet, J.P. Morgan Asset Management.
Data are as of September 10, 2024.
Thought of the week: Source: FactSet, J.P. Morgan Asset
Management.
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Originally Posted September 16, 2024 – Weekly Market Recap
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