11 out of 11 large cap sectors see an increase in positive income – the highest in 3 years
This is the income season (informal) end, with NVDA reporting yesterday afternoon earnings (they defeated, +71% yoy with an increase in income).
And it actually turned out to be a strong quarter (for the large cap).
When we previewed our Q4 income a month ago, analysts estimated that 4 sectors (staples, industrial, materials and energy) would see an increase in negative income (partially rates from the headwinds and energy prices -10% yoy drop in energy prices).
Proceed rapidly in a month, and only energy is on track to increase negative income. The positive field has the highest number of 10 sector in three years.
And, as we exposed in the last summer, this is an indication that earnings are actually moving beyond the Mag 7.
Extensive-based income increase for large cap, financial power ends small hat earnings recession
This broad-based strength helped run the highest income increase for S&P 500 (below chart, orange bar) in three years, and the highest for NasDAQ-100 (lighter blue bar) a year.
For small cap, earning was No Extensive-based, with four regions in the negative area. Nevertheless, for the first time in 2½ years, the small cap saw an increase in positive income (green bar). Earnings more than recession.
Most of the rebound for the small cap came from the financial, with an increase in +31% yoy income. As we discussed in our earnings preview, Financial promoted the election that promotes trading revenue, and to increase the optimism of post -election and increase borrowing. (Mid cap financial also saw an increase in +25% yoy income, but it was not enough to offset negative income in four areas).
2025 income is expected to increase (large cap) or solidly positive (small and middle cap)
Therefore, after most strong ends for 2024, the question is whether earnings can be strong … or improve in 2025.
And right now, analysts are optimistic (chart below). In 2025 (NasDaq-100® and S&P 500), the earnings increase are either expected to be strong or replace solidly positive (S&P 400 and 600).
For mid cap and small cap, it is easy to see why it is:
- They get favorable comparison against increase in negative income last year
- They benefit from low rates because they have a higher temporary rate loan
- And a still solid economy
- And any new tax cuts we can see (2017 tax deduction expansion does not give any new boost)
For large caps Nasdaq-100® and S&P 500, it is difficult:
- They have to manage 10+% a 2Ra Straight year (which they did in both 2017-18)
- When margin is already around record height
- In an economy, while still solid, it will probably see a slow growth compared to 2024
- And they are exposed to floating rates, so low rates will not help as much
One thing that can help in large cap is that analysts have recently projected widely to continue. After an increase in negative income in some areas last year, all areas are expected to see a positive increase in 2025. We will take our first look whether big caps can fulfill these elevated expectations, when the Q1 income season begins.
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