Q3 2024 Earnings: Santa Delivered, but Markets Expect More in 2025

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When kids are young they don’t ask for much, maybe a toy car or a puzzle will keep them happy, but as they get older the requests always seem to get bigger. Those toys and puzzles, become more complicated and bigger Legos or video games, or designer clothes and was invariably something we never had as kids.

Markets weren’t asking for much in the third quarter so the 5.9 percent earnings growth we got in the quarter delivered all that was asked for, above the 4.2 percent analysts were expecting when we entered earnings season. The magnificent seven which include Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla delivered nearly all of the growth of the S&P 500 with 21 percent growth for the quarter, above the 19 percent that was expected going into earnings season. This is despite the fact that Apple reported earnings of $0.97 per share versus the expectation of $1.60 per share due to a $10.2 billion charge related to the impact of an adverse ruling in Europe regarding tax payments. The rest of the index had a really low bar with an expected earnings decline of 1 percent which they managed to beat with growth of 1 percent.

Markets rewarded earnings beats delivering an average price increase of 1.6 percent from the two days before reporting earnings to the two days after which is above the 5 year average price increase of 1 percent. On the other hand high valuations contributed to an average price decrease of 3.1 percent when companies missed earnings which was above the 5-year average decrease of 2.3 percent. As we continue to move into 2025, high valuations will continue to place greater importance on not only beating earnings but delivering solid guidance to continue to see price increases.

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