Clement Inbona

We can’t yet call this a trend

With the first-quarter corporate earnings season coming to a close, we can already draw a number of conclusions from a macroeconomic standpoint.

In both Europe and the US, reported earnings per share exceeded financial analysts’ expectations by almost 8%. The results come as no big surprise, given that part of the ploy is for companies to guide consensus towards forecasts that are slightly lower than actually expected ahead of publication. The aim is to exceed expectations on the day, and to then guide forecasts upwards over the next few quarters. Witness the effect on share prices the day after publication: it is zero on average for Euro Stoxx shares, and even slightly negative for S&P 500 equities, which shows that investors aren’t falling for this tactic.

In terms of earnings, however, one thing is clear. The strength of the US economy, for which nominal growth is currently estimated at 5.5% year-on-year, is reflected in an 8% rise in profits over the period. The situation is more mixed in the eurozone, where nominal growth only came to 3% and weighed on Euro Stoxx company earnings, which fell 7.5% year on year. This difference can also be explained by the composition of indexes in the two zones. A fall in commodity prices had a significant impact on European profits, due to a challenging basis for comparison.  Meanwhile, the Magnificent 7 in the United States, which dominate indexes and are keeping their focus on AI, are a powerful driving force. If we exclude them from the index, earnings growth is zero, while that of the Magnificent 7 reaches stratospheric levels of over 50%. Nvidia alone, the rising AI star, saw profits increase more than five-fold year-on-year. This company alone is therefore responsible for almost half of the increase in the S&P 500 index’s earnings per share.

This earnings season has also provided a number of insights about quarters to come. Strong macroeconomic figures in the United States and the pick-up in European growth after five uninterrupted sluggish quarters, have resulted in upward revisions in 2024 earnings forecasts on both sides of the Atlantic. But two trends are emerging. Analysts in Europe have been revising their 2024 estimates upwards since April, and the ratio of upwards to downwards adjustments is now greater than 1, a sign recovery is being widely accepted. In the United States, while estimates are being revised upwards, forecasts are centred on the seven largest market capitalisations. Furthermore, if we exclude them from the S&P 500, earnings of the 493 other companies have been revised downwards for 2024.

Of course, we can’t yet call this a trend. But it does provide some interesting insights for the near future.


Final version of 24 May 2024 – Clément Inbona, Fund Manager, LFDE