EPS Beats and Misses %
For most of 2023, even amid macroeconomic headwinds, the percentage of S&P 500 constituents surpassing EPS expectations vs. S&P Capital IQ Estimates increased. But that trend ended in Q4, with just 74% of those companies beating expectations, down 6% compared to Q3 2023 (80%), down 5% compared Q2 2023 (79%), and down 3% compared to Q1 2023 (77%). Even so, that’s an improvement over Q4 a year earlier, when only 68% of index constituents surpassed EPS expectations. Performance throughout 2023 appeared to be a sign of the U.S. market’s resilience. Analysts remain hopeful for 2024, given anticipated Federal interest rate cuts later this year and the apparent success of Artificial Intelligence-focused companies.
At the individual sector level, Information Technology once again had the highest percentage of firms outperforming EPS estimates with 88%, a slight decrease from Q3 2023 at 89%. Information Technology also had the highest last-four-quarter average with 88%, 5% higher than the next closest sector, Consumer Discretionary with 83%.
After Information Technology, Industrials was Q4’s next highest performing sector with 82% of firms surpassing analyst EPS expectations, although like Information Technology, it fell slightly from Q3 2023 (83%). Behind Industrials was Consumer Staples with 79% of firms outperforming EPS expectations, followed closely by Health Care with 78% and Consumer Discretionary with 77%. Despite success in Q4, those three sectors were all below their last four quarter averages, Consumer Staples 79% vs. 82%, Health Care 78% vs. 81%, and Consumer Discretionary 77% vs. 83%.
The sector with the lowest percentage of firms surpassing EPS estimates was Real Estate with 52%, the same as in Q3 2023, and well below Q2 and Q1 with 76% and 66%, respectively. The sector’s declining Beats performance may be tied to the struggles of the Commercial Real Estate market, making this a sector to watch closely in 2024. After Real Estate, the next lowest performing sector was Communication Services with 56%, followed by Utilities with 57%.
EPS Growth %
Year-over-year, the S&P 500 recorded an EPS growth rate of 18.9%, increasing from 13.9% in Q3, and well above Q2 and Q1 at 4.3% and 2.6%, respectively. The strong performance year-over-year between Q4 2022 and Q4 2023 highlights improving market conditions and the strong performance of constituents riding the wave of Artificial Intelligence. This wave of strong EPS growth may continue through 2024 on expectations of the Fed cutting interest rates.
However, it wasn’t all positive, as we still observed three negative growth sectors this quarter, Energy (-22.6%), Materials (-5.5%), and Health Care (-0.3%). Though Energy once again recorded negative EPS growth, it did improve quite a bit from last quarter (-33.7%).
Once again, the highest growth sector was Communication Services at 96.3%, continuing strong growth from last quarter (63.0%). Anchoring the increase for Communication Services were strong year-over-year performances from Netflix, Inc. (NasdaqGS:NFLX), climbing 0.12 EPS in Q4 ’22 to 2.11 Q4 ’23; Meta Platforms, Inc. (NasdaqGS:META), vaulting from 1.76 EPS in Q4 ’22 to 5.33 in Q4 ’23; and Alphabet Inc. (NasdaqGS:GOOGL), rising from 1.05 EPS in Q4 ’22 to 1.64 in Q4 ’23. After Communication Services, the next highest growth sector was Real Estate with 39.6% EPS growth year-over-year, a turnaround from last quarter’s growth rate of -44.3%. After Real Estate, the next highest growth sectors were Information Technology (30.6%) and Utilities (26.5%).
Revenue Beats and Misses %
In Q4 2023, 66% of S&P constituents surpassed Revenue expectations vs. S&P Capital IQ Estimates, a 3% increase compared to Q3 2023 (63%), 2% increase compared to Q2 (64%), and 8% below Q1 (74%). Q4 2023’s 66% was just slightly below the last-four-quarter average for Revenue beats at 67% and was the same as Q4 2022 (66%).
Among individual sectors, Health Care had the highest percentage of firms surpassing Revenue estimates with 86%, a tremendous improvement from Q3 (64%), just above Q2 (84%), and above Q1 (79%). Year over year, Health Care saw a massive improvement, up 18 percentage points from 68% in Q4 2022.
After Health Care, Communication Services was the next highest sector with 79% of firms outperforming revenue estimates, the same as in Q3 2023 where the sector was the highest overall. Although the last two quarters have been strong for Communication Services, they have a last-four-quarter average of 61%, due to poor earnings in Q2 (30%) and Q1 (57%). However, like Health Care, Communications Services saw a dramatic improvement from a year ago, when only 50% of sector constituents surpassed revenue estimates in Q4 2022. Industrials followed Communication Services in Q4 2023 with 71%, just ahead of Information Technology with 70%.
The sector with the lowest percentage of firms surpassing revenue estimates was once again Utilities, whose 33% marked a slight improvement from last quarter (27%) but still fell well below the next lowest sector, Consumer Staples with 55%. It’s also a dramatic fall from a year ago. In Q4 2022 and Q1 2023, the sector recorded 90% and 80% of firms surpassing revenue estimates, respectively. That number almost halved in Q2 2023 (41%), and it hasn’t been able to recover. Analysts will want to monitor the sector closely throughout 2024.
Just above second-lowest sector Consumer Staples was Consumer Discretionary, with 57% of firms outperforming revenue estimates, followed closely by Materials and Energy, both with 61%.
YoY Revenue Growth %
Overall, Q4 2023 revenue for the S&P 500 recorded a growth rate of 9.3%, year-over-year, an increase from 5.9% last quarter (Q3 2022 vs. Q3 2023) and 3.9% in Q2 & Q1. Communication Services was the highest revenue growth sector, increasing 13.6% year-over-year, an improvement from the Q3 growth rate of 11.2%, and well above both Q2 (6.6%) and Q1 (1.8%). Contributing to the sector’s success were strong increases from heavyweights like Live Nation Entertainment, Inc. (NYSE:LYV) with 36.1% year-over-year revenue growth, Meta Platforms, Inc. (NasdaqGS:META) with 24.7%, Alphabet Inc. (NasdaqGS:GOOGL) with 13.5%, and Netflix, Inc. (NasdaqGS:NFLX) with 12.5%.
Closely behind Communication Services was Financials with revenue growth of 13.2%, highlighted by strong year-over-year revenue increases from Intercontinental Exchange, Inc. (NYSE:ICE) with 24.5%, Nasdaq, Inc. (NasdaqGS:NDAQ) with 23.3%, and The Progressive Corporation (NYSE:PGR) with 21.4%. After Financials, the next highest growth sectors were Consumer Discretionary with 11.8% and Information Technology with 10.3%.
We observed three negative growth sectors this quarter: Energy (-12.3%), Utilities (-4.7%), and Materials (-0.7%), which was a slight improvement from the four we observed in Q3. Real Estate (8.2%), Health Care (7.1%), Consumer Staples (4.9%) and Industrials (1.9%) all recorded positive year-over-year revenue growth.
Source: S&P Capital IQ Pro. Data as of March, 29, 2024.