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As of Thursday night, July 18, 2024, only 70 companies had reported Q2 ’24 earnings results, so the sample size is still a little small to draw larger conclusions about S&P 500 earnings for Q2 ’24.
This coming week, per LSRG, 134 companies will report their second quarter earnings, so by the end of next week, 41% of the S&P 500 will have reported their Q2 ’24 earnings results.
While bond and credit market data is always lost in the equity market chatter, corporate high-yield credit spreads tightened again this week to +309, down from +323 on July 5th, +324 on June 21, and +342 on April 19 ’24. (In their Morning Lineup, Bespoke puts out an average corporate credit spread metric for both high-yield and investment-grade, which this blog tracks weekly.)
All else being equal, gradually tightening corporate high-yield credit spreads imply a US economy that remains in reasonably good shape. Obviously, corporate sector spreads are a better signal, but that average high-yield spread implies employment, income and spending should remain in line with where they have been the last few years, or maybe a better way to say it is that the corporate high-yield credit market is not yet forecasting impending doom.
Investment-grade credit spreads have a bigger duration attribution, as so-corporate high-grade (as corporate investment-grade credit is frequently called) will be more sensitive to changes in Treasury prices and the Treasury yield curve.
The point being, the high-yield and high-grade credit spreads are not yet flashing red or even yellow, for that matter, in terms of US economic weakness.
To give readers some perspective, +309 is the tightest high-yield credit spread I’ve seen tracking the data (which started about 9 months ago), and +400 has been the widest spread, which occurred during that period of weak economic data in Q4 ’23, as the 10-year Treasury yield traded down to its recent low yield of 3.78% in December ’23.
If the 10-year Treasury yield trades below 4%, watch how high-yield credit spreads respond, since it could be telling readers that there is more happening in the US economy than just the “disinflation” trade. If high-yield credit spreads tighten further from here, let’s say below 3%, which would be very tight indeed, it could mean that US economic growth is poised to accelerate.
S&P 500 data
- The forward 4-quarter estimate fell for its second week in a row, breaking its June ’24 pattern, as it ended the week of July 19th at $260.30, down from $261.17, and the peak FFQE of $261.39 on July 5th, 2024.
- The P/E on the FFQE is 21.2x versus last week’s 21.50, not surprising given the -3.65% drop in the Nasdaq Comp and the -1.95% drop in the S&P 500.
- The S&P 500 earnings yield ended the week at 4.71%, versus June 30th’s 4.63%. (Personally, I’d like to see the S&P 500 earnings yield trade above 5% and remain there for a while.)
- The current “upside surprise” for S&P 500 EPS is 5% as of this week, still below Q1 ’24’s 8%. That will be an important tell in the next few weeks.
Summary / conclusion
Looking at the “tightness” of corporate credit spreads and what’s happening in the equity market, personally I’d love to see another 8-10% pullback in the S&P 500 (which likely means a great pullback in the Nasdaq Comp) to reset the bull market bar, as 2022 did. In 2022, the Barclays Aggregate (AGG) fell 13% (one of its worst years ever), while the S&P 500 fell roughly 18%, which was perfect to take all the bullish sentiment out of the stock market that we saw at the end of 2021.
The names that this blog has an interest in this that are reporting Q2 ’24 financial results this coming week are Coca-Cola (KO), Alphabet (GOOGL), Tesla (TSLA), Chicago Mercantile Exchange (CME), and maybe Honeywell (HON).
The mega-cap stock earnings release dates:
- Microsoft (MSFT): July 30 AMC
- META (META) July 31 AMC
- Apple (AAPL) August 1 AMC
- Amazon (AMZN): August 1 AMC
- Nvidia (NVDA): August 28 ’24, AMC
AMC – after-market close.
6 of the top 10 S&P 500 names (by market cap) report in the next two weeks.
Investors are entering one of the toughest market return periods in the stock market every year, which is typically late July to early October.
A good tell will be to watch how the mega-caps trade after a good earnings report in the next few weeks.
Netflix (NFLX) had a solid earnings report on Thursday night. It should have traded up on many of those metrics. This company is still in the sweet spot of its cash flow and revenue growth. I’ll take the flat trade (-1.5% on 3x avg. volume) on Friday, July 19th.
Next week, July 26th, there will be a better handle on what’s happening with S&P 500 earnings.
None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of futures results. Investing can, and does, involve the loss of principal, even for short periods of time. All S&P 500 EPS and revenue data is sourced from LSEG.com.
Thanks for reading.
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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