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US Q3 earnings show positive trend, Apple dominates upcoming week

The US third-quarter earnings turned more positive last week, and with another significant week ahead, dominated by Apple, there’s a good chance the improving trend will continue.

JP Morgan analysts report that US companies are outperforming their European counterparts. In the S&P 500, 78% of companies reporting their earnings have exceeded earnings estimates, posting a 12% year-over-year earnings growth, as stated by JP Morgan analysts on Friday.

In contrast, only 57% of Stoxx600 companies that have reported so far have surpassed earnings estimates, with third-quarter earnings falling 8% from the previous year. The primary cause of earnings weakness in Europe has been the commodities sector, according to JPMorgan.

Equity strategist Mislav Matejka noted, “While it is still early in the season, we note that so far European top-line delivery is exceptionally weak” in a Friday note.

The pressure will intensify in the coming week, with 162 S&P 500 companies (including four Dow 30 components) scheduled to release their third-quarter reports.

Companies in the consumer discretionary sector have led the way with better-than-expected revenues and earnings, including many of the big tech firms. Energy companies have lagged, as seen with figures from Chevron and Exxon Mobil on Friday, which were slightly weaker than expected for Chevron and uninspiring for Exxon ahead of its Pioneer takeover.

This discrepancy helps explain the strong initial estimate of third-quarter economic growth in the US, driven by a surge in consumer spending.

Apple will dominate the coming week with its report on Thursday. Analysts express concerns about the new Apple 15 iPhone’s weak reception in the Chinese market, but a surprise uptick in phone sales in India could be a game-changer.

Investors hope that Apple can follow in the footsteps of Netflix, Amazon, and Microsoft by delivering better-than-expected results. However, for companies that have already reported, such surprises tend not to last. Alphabet (Google) is a case in point, with its shares dropping nearly 10% last week despite a seemingly solid rebound in ad revenues.

Other companies set to report this week include Eli Lilly, Starbucks, Caterpillar, PayPal, Pioneer Natural Resources (Exxon Mobil’s partner in a merger), HSBC, BMW, Kraft Heinz, Barrick Gold, AMD, PetroChina, BP, Shell, Toyota, Samsung, McDonald’s, ConocoPhillips, and Mondelez.

FactSet, a US financial data group, noted in a review of the season so far that at the mid-point of the third quarter season for the S&P 500, “both the number of positive earnings surprises and the magnitude of these earnings surprises are above their 10-year averages.”

“As a result, the index is reporting higher earnings for the third quarter relative to the end of last week and relative to the end of the quarter. The S&P 500 is now reporting year-over-year growth in earnings for the first time since Q3 2022,” FactSet reported.

“Overall, 49% of the companies in the S&P 500 have reported actual results for Q3 2023 to date. Of these companies, 78% have reported actual EPS above estimates, which is above the 5-year average of 77% and above the 10-year average of 74%.

“As a result, the blended revenue growth rate for the third quarter is 2.1% today, compared to a revenue growth rate of 1.8% last week and a revenue growth rate of 1.6% at the end of the third quarter (September 30).

Nine sectors are reporting year-over-year growth in revenues, led by the Consumer Discretionary and Communication Services sectors. On the other hand, two sectors are reporting a year-over-year decline in revenues: Energy and Materials.”

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