The US third-quarter reporting season is set to begin next week, with HSBC strategists anticipating a tempered magnitude of earnings beats compared to previous quarters. While consensus expectations project an 8 per cent earnings per share (EPS) growth for the quarter, exceeding the approximately 5 per cent growth seen in earlier quarters, this figure represents a deceleration from the 12 per cent EPS growth reported in the second quarter.
HSBC suggests there is potential for EPS to surpass expectations, particularly among market heavyweights known as ‘the magnificent seven’ (Mag 7). However, the bank cautions that the extent of these positive surprises may be less pronounced due to the already elevated starting point. The bank anticipates solid results from the technology and financials sectors.
Conversely, consumer discretionary and staples are projected to report lower or declining earnings, particularly in the automotive, consumer durables, and food, beverage, and tobacco industries. The ‘Mag 7’ companies are expected to outperform the broader S&P 500, with an anticipated earnings growth of 12 per cent, compared to 7 per cent for the S&P 500 excluding these firms. However, this gap is forecasted to narrow to its lowest level in two years.
Excluding Nvidia, EPS growth is expected to slow significantly from an average of 18 per cent in the second quarter to just 3 per cent in the third quarter. HSBC analysts currently hold ‘Buy’ ratings on several prominent tech companies, including Alphabet, Amazon, Meta, and Microsoft.
