Trading Q4 Earnings: Will Bulls Fly or Just Get Gored?

by Direxion, 1/30/25

Editor’s note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.

As U.S. companies unveil their fourth-quarter (Q4) earnings, the spotlight is firmly on whether corporate profits can reignite after a rocky 2024. According to date from FactSet, analysts predict an 11.7% year-over-year earnings growth for the S&P 500*—the strongest since late 2021. But with inflated market valuations and mounting investor anxiety, this earnings season could either fuel the market’s fire or leave it gasping for air.

Earnings Growth: Adjusted Expectations

Back in late September, the outlook was even rosier, with projections of 14.5% growth. However, reality has tempered optimism, shaving estimates down to 11.7%. Guidance paints a mixed picture: while 71 S&P 500 companies have offered negative earnings per share (EPS)* guidance (well above the five-year average of 56), only 35 have issued positive guidance (below the five-year average of 42).

Sector Winners and Losers

Not all sectors are sharing the same optimism. Financials are the quarter’s MVP, with an impressive 38.9% expected earnings growth, thanks largely to the banking sector's rebound. Communication Services and Information Technology aren’t far behind, boasting 20.7% and 13.9% growth, respectively. Even perennial underdogs—Utilities and Consumer Discretionary—are set to flex double-digit earnings expansion.

Revenue Trends: The Never-Ending Climb

Q4 also marks the 17th consecutive quarter of revenue growth for the S&P 500, with revenues expected to climb 4.6%. Technology companies lead this charge, leveraging the insatiable demand for digital transformation and tech services.

Valuation Watch: High Hopes or Hot Air?

The S&P 500’s forward P/E ratio* now stands at a lofty 21.8—well above the five- and ten-year averages. The market seems to have already priced in a rosy earnings season, leaving little room for disappointment. A failure to meet lofty expectations could spark turbulence for equities.