S&P 500 delivers better than average EPS surprise, Big Tech leading the way

The has once again exceeded expectations in the latest quarter, delivering an earnings per share (EPS) surprise of +7.8%, notably above the seven-year pre-pandemic average of 5.24%.

In terms of the beat-to-miss ratio, 80% of companies topped the consensus EPS estimate, outpacing the long-term average of 76%. While the surprise factor improved from the previous quarter and revisions ahead of the earnings reports were less negative, year-over-year growth has decelerated.

Sector-wise, Technology remains the frontrunner with nearly 90% of companies beating consensus expectations, followed by Healthcare and Consumer Staples. In contrast, the Energy, Utilities, and Materials sectors recorded the highest number of misses.

After a somewhat mixed quarterly performance for Big Tech in Q4, the Q1 2024 saw the sector’s year-over-year earnings growth slow from 63% to 56%. However, the average EPS beat rebounded, with Nvidia (NASDAQ:) and Google (NASDAQ:) carrying the bulk of the group’s overall EPS surprise.

“Big Tech remains central to the S&P 500’s margin recovery story: the group drove a third straight quarter of positive operating leverage for the S&P 500, while consensus expects SPX ex-Big Tech to deliver little to no margin expansion in FY24,” analysts said in a note.

In terms of year-to-date revisions to next twelve months (NTM) earnings, Big Tech retained its lead other US equities, with positive revisions recently for the rest of the S&P 500, unlike small-caps which remain flat.

Technology, Media, and Telecommunications (TMT) sectors have driven improved FY24 EPS estimates, with Financials also contributing, while Healthcare detracted due to specific stock issues.

Most sectors trade at or above full valuations, with the overall Tech sector appearing very expensive. Still, Big Tech trades at a smaller premium due to strong implied earnings growth.