For Immediate Release
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Q3 Earnings Weak Despite Tech Strength
The flood of Q3 earnings announcements continues this week, with almost one thousand companies reporting results, including 170 S&P 500 members. By the end of this week, we will have seen Q3 results from two-thirds of the index's total membership.
But with results from more than 40% of the index's total market capitalization already out, it isn't hard to reach the conclusion that the overall earnings picture remains weak. A few standout reports notwithstanding, the overall growth picture remains challenged, with companies struggling to beat lowered top-line expectations and estimates for the current period coming down at an accelerated pace. At this stage in the reporting cycle, the ratio of companies beating revenue estimates is the lowest that we have seen in the recent past.
More on the aggregate earnings picture emerging from the already-released Q3 results a little later, but let's briefly touch on the Tech sector's results following the strong reports from Microsoft ( MSFT ), Google or Alphabet ( GOOGL ) and Amazon ( AMZN ). Plenty of Tech sector results are still to come, but the reports from these bellwethers were very impressive and likely sustainable in the coming periods as well. Given the company specific drivers that produced the outperformance for each of these three bellwethers, it is reasonable to be skeptical of extrapolating their momentum to the broader Technology space. But the sector's earnings performance nevertheless stands out among all the sectors at this stage in the Q3 reporting cycle.
With results from 53.6% of the Tech sector's market cap in the S&P 500 index already out, total earnings for the sector are up +3.7% on +1.7% revenue growth, with 68% beating EPS estimates and an above index average 64% coming ahead of revenue estimates. These growth rates may look that impressive, but they are nevertheless better than what we have seen from the same group of Tech sector companies in other recent periods.
What these comparison charts show is that not only are the Q3 earnings and revenue growth rates for the sector tracking better relative to other recent periods, but the ratio of companies beating consensus revenue estimates -- a persistent problem elsewhere -- is the highest among the major sectors in the S&P 500 index (and the third highest overall). We will see this week if the trend will remain in place, but this is nevertheless positive.
Q3 Scorecard ( as of Friday, October 23rd )
With Q3 results from 172 S&P 500 members already on the books, total earnings are up +2.0% on -2.1% lower revenues, with 70.5% beating EPS estimates and only 40.5% coming ahead of top-line expectations.
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