Three big things you need to know today: First, the early earnings stats are mixed for the broader market but promising for the rotation trade. Second, company commentary continues to suggest the plumbing of the economy is in good shape, with a few clogs. Third, our examination of index, sector and industry performance and trends in polling and betting market averages suggest to us that several traditional Trump trades (specifically, Small Caps, Energy, Financials) have remained intact.
If you’d like to hear more, here’s another 5 minutes. Now, let’s jump into the details.
Starting with Takeaway #1: The Early Earnings Stats Are Mixed for the Broader Market, But Promising for the Rotation Trade
Here’s what jumps out to us on the stats for 3Q24 reporting season so far:
• First, the headline stats are solid to be sure, but not quite as strong as one might expect given the strong move higher in the S&P 500 recently. The four-week average on the rate of upward EPS estimate revisions for the S&P 500 is just 43%, suggesting we’re seeing slightly more downward than upward revisions.
• In terms of actual results, the percent of companies beating consensus on revenues is off to a good start within the S&P 500 and tracking higher than 2Q24 (69% for 3Q24 vs. 61% for 2Q24). However, the percent of companies beating consensus on EPS is actually down a bit (75% for 3Q24 so far vs. 80% for 2Q24).
• Second, we’re also seeing some good signs for the rotation trade out of Mega Cap Growth names so far. The rate of upward EPS estimate revisions continues to favor the biggest market cap names in the S&P 500, but to a lesser degree than what’s been seen in recent months.
he rotation trade is that the:
• On 2025 consensus forecasts, the 2025 EPS growth rate has also moved up recently for Health Care, Materials, and Industrials. With this latest move, Health Care now has the highest growth rate anticipated by consensus forecasts for 2025. Meanwhile, the 2024 and 2025 EPS growth rates embedded in consensus forecasts are still quite strong for the key growth sectors (Tech, Communication Services), but those have been relatively flat recently.
Moving on to Takeaway #2: Company Commentary Continues to Suggest the Plumbing of the Economy Is in Good Shape, With a Few Clogs
Financials have been heavily represented in the results so far, and for the most part descriptions of the macro backdrop continue to emphasize resilience, steadiness, normalization, and a resilient but discerning consumer. To be a sure, a few companies have noted more challenging backdrops, but these companies are from industries whose challenges have been well telegraphed for quite some time.
On the consumer, value consciousness, resilience, and the gap between the low and high end continued to be emphasized. One company’s emphasis on how the consumer has been acting rationally, not stressed, was particularly noteworthy to us. Companies expressed optimism about the positive impact of lower interest rates going forward. Uncertainty emanating from the US election has also remained in focus in a number of industries.
Wrapping up with Takeaway #3: the market seems to have some muscle memory on the election, with several traditional Trump trades emerging again.
• With the US Presidential election only two weeks away, we examined how different indices, sectors, and industries have been trading relative to the trends in betting markets and polling averages for the two candidates and the spread between them since Harris entered the race. These relationships may be shifting or coincidental, but the results were interesting regardless. Both S&P 500 and Nasdaq 100 have been aligned with Harris and the Harris-Trump spread in the polling averages over the past few months, but very recently it does appear that the relationship between these indices and the Harris-Trump polling spread is breaking down.
€™ve also started to see the R:
• Energy performance (relative to the S&P 500) has also been inversely correlated with the Harris-Trump polling average spread…
performance (relative to the R:
• The story we see in the data is that the equity market either got comfortable with Harris or was ignoring the election in August-September, but may be syncing up with Trump again. We also see indications that some traditional Trump trades (buy the US via Small Caps, Energy, Banks) have remained intact.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
