Earnings Outlook: Barclays Warns of Uncertainty in Upcoming Quarter

As the curtain closes on a “generally good” quarterly earnings season for corporate America, Barclays warns of an uncertain road for earnings in the coming quarter, paved with an ongoing slowdown in big tech earnings and macroeconomic headwinds.

Key Points

• Earnings Revisions: 3Q24 EPS has been revised down nearly -5% since May; Y/Y growth is expected to fall by more than half compared to this reporting season.
• Comparative Analysis: The gloomy outlook for current quarter earnings pales in comparison to Q2 2024, which saw earnings per share growth reaching 11.7%, the highest in over two years, with about 81.2% of S&P 500 companies beating EPS estimates.
• Modest Surprises: While Q2 earnings mostly beat expectations, the surprise factor was “modest,” with the aggregate surprise 4.1% below the long-term average.
• Negative Revisions: The small surprise factor was set before the earnings season officially began as many companies reported negative revisions leading up to their earnings reports.

Sector Performance

• Financials: The biggest winner, with 83% of the sector beating consensus estimates and the highest EPS surprise in three years.
• Big Tech: Experiencing a decline, with EPS growth decelerating for the second consecutive quarter. Notably, NVIDIA Corporation posted its weakest EPS surprise of 5.4% in the last seven quarters.

Macroeconomic Challenges

Analysts believe earnings growth won’t receive support from the macroeconomic front, as uncertainty surrounding a soft landing or potential recession continues to weigh heavily.

“Further-out estimates [beyond 3Q24] are largely untouched; we think this reflects growing macro uncertainty,” Barclays added.