S&P 500 Q3 Earnings Review: Key Insights & Surprises

We’re just about through the end of the third quarter earnings season, with approximately 92% of the S&P 500 having reported as of Nov. 15.

For the index as a whole, corporate earnings for the S&P 500 are expected to have declined slightly in the quarter according to Refinitiv, with analysts expecting earnings growth of -0.4%. On an individual company level, however, results unsurprisingly came in above expectations, with 74.6% of S&P companies beating the consensus analyst estimates (that’s right in-line with the 74.8% figure for the first two quarters of 2019).

Results were slightly more downbeat when it came to revenue. While S&P 500 revenue is expected to have risen 3.8% in the quarter, only 58% of companies exceeded analyst expectations, while 42% missed.

With only 39 S&P 500 companies yet to report results for the third quarter, here are the biggest takeaways:

1) Energy dragged the market down

As has been the case for several quarters now, results from the energy sector continue to weigh on the index. According to Refinitiv, removing energy would improve the S&P 500’s earnings growth rate in Q3 from -0.4% to 2.2% and improve revenue growth from 3.8% to 5.2%.

Only 53% of energy companies in the S&P 500 beat the analyst earnings estimate in the third quarter—only the real estate sector did worse.

2) Real estate and materials also had poor showings

When it comes to earnings as they compare to analyst estimates, real estate performed especially poorly. Only 53% of real estate companies in the S&P 500 beat the estimate in Q3, down from 68% in Q2 and 75% in Q1.

Materials meanwhile had their worst showing since at least 2017, with only 57% of materials companies beating expectations in Q3. That figure is down from 74% in Q2 and 73% in Q1. On the revenue side, only 28% of materials companies had positive revenue surprises, the second worst showing of any sector (utilities were the worst, with only 14% of companies having positive revenue surprises).

3) Health Care and technology were the bright spots

For earnings, 87% of S&P health care companies delivered earnings beats in Q3, second only to consumer staples’ 89%. On revenue, 82% of the health care sector beat expectations, more than any other sector.

That trend is reflected in the Health Care Select Sector SPDR Fund (XLV). Of the top 10 components, eight beat the consensus estimate for both earnings and revenue (Abbott Laboratories reported earnings in-line and a slight revenue miss, and Medtronic doesn’t report until Nov. 20).

The technology sector also had a strong showing with 86% of companies posting earnings beats and 74% posting revenue beats. While the vast majority of companies beat analyst expectations however, not everybody appears to have done enough to meet the high expectations of Wall Street. Cisco Systems (CSCO) and NVIDIA (NVDA) are among the largest tech holdings to have beaten earnings estimate but also report weak Q4 guidance, leading to selling pressure in their shares.

4) Looking Ahead To Q4

Of the 83 S&P companies to give forward-looking guidance so far, 58 gave Q4 EPS guidance below analyst estimates while 25 gave guidance above estimates. That split falls roughly in-line with Q4 2018 and the average since 1997.

In terms of earnings growth, analysts continue to be bearish. The estimated S&P 500 earnings growth for Q4 2019 sits at 0.2%, down from the 11.5% estimate at the beginning of 2019.

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