The S&P 500 (SPX) has secured several new all-time highs over the past few weeks, driven by strong quarterly results. In fact, this quarter is “one of the best earnings seasons in 20 years,” according to Deutsche Bank.
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The numbers speak for themselves. As of early May, 84% of S&P 500 companies topped their earnings estimates, while 81% surpassed revenue estimates, according to FactSet. The average first-quarter earnings growth has tallied in at 27%, more than double the average growth when excluding recessionary periods.
Magnificent 7 Dominate Earnings Growth
Meanwhile, earnings estimates have steadily risen higher since the beginning of the year. That contrasts with the norm of analysts lowering estimates as the year progresses.
However, the strong results come with a catch. Index concentration in the Magnificent 7 stocks has been a large factor behind the earnings growth. Alphabet (GOOGL), Amazon (AMZN), and Meta Platforms (META) made up 71% of last week’s increase in S&P 500 earnings dollars. In addition, companies that miss earnings have experienced an average drop of 4.2%, more than double the historical average of 2.9%.