JPMorgan expects third-quarter corporate earnings to provide a foundation for equity markets as profit growth extends beyond the technology companies that have accounted for a substantial share of recent US earnings expansion.
Strategists led by Mislav Matejka said that while headline earnings forecasts appear elevated, underlying estimates suggest more moderate growth expectations across the wider market. The bank anticipates that corporate results could become a greater focus for investors following September’s market volatility.
S&P 500 Earnings Estimates Vary Across Data Providers
Consensus forecasts compiled by IBES indicate that S&P 500 earnings per share will increase 24% in the third quarter. FactSet and LSEG estimates put growth at 30%, reflecting an adjustment for a one-time tax charge involving Meta (NASDAQ:META).
However, the projected increase declines to 15% when Nvidia (NASDAQ:NVDA) and Micron Technology (NASDAQ:MU) are excluded.
The median S&P 500 constituent is expected to record earnings growth of 8%, indicating a difference between aggregate index performance and the results anticipated for individual companies.
European companies are forecast to deliver earnings growth of 19%, according to consensus estimates. Removing the energy sector reduces the expected increase to 11%, while median earnings growth stands at 9%.
Median revenue growth is projected at 7% for companies in both the S&P 500 and Stoxx 600 indices.
These figures form part of JPMorgan’s assessment that earnings growth is extending across a wider range of companies.
Global Economic Activity Supports Earnings Forecasts
JPMorgan cited global purchasing managers’ indices as evidence supporting its earnings outlook. The indicators accelerated during the third quarter, reaching multi-year highs.
The bank’s earnings lead indicator has also continued to rise. Historically, the measure has preceded changes in reported corporate earnings by approximately two quarters.
Based on this relationship, JPMorgan expects earnings conditions to remain supportive over at least the next two reporting seasons.
The strategists also observed that the proportion of global companies reporting accelerating earnings growth is close to a historical high.
Artificial intelligence-related businesses remain important contributors to US earnings expansion, although JPMorgan identified an increasing contribution from companies operating outside that segment.
European Earnings Outlook Includes Higher Margins
JPMorgan expects European companies to benefit from further operating margin expansion, with earnings before interest and taxes projected to represent 14.4% of sales this year.
That figure is 250 basis points above the corresponding level in 2019.
The bank anticipates improvements across most sectors, excluding consumer staples, automotive businesses and software companies.
Currency movements could also influence results. JPMorgan expects a weaker euro to provide some support for exporters, while energy companies may exceed current earnings forecasts.
The strategists identified mining companies as a potential source of earnings risk. Businesses with exposure to China and consumer demand may also report more subdued results, while higher energy costs could feature in corporate commentary.
JPMorgan Highlights Banks and Industrial Companies
Semiconductor manufacturers and industrial companies are among the sectors JPMorgan expects to report results above market expectations.
The bank also anticipates earnings support for European financial institutions, despite a reduction of more than 10% in banking-sector valuations during recent weeks.
French equities have undergone valuation declines exceeding 15%, although JPMorgan said corporate earnings have remained comparatively stable.
The strategists noted that companies in the CAC 40 generate approximately three-quarters of their revenue outside France, making international operations an important component of their financial performance.
JPMorgan continues to favour European semiconductors, banks, chemicals and industrials within its sector positioning.
Bond Market Developments Remain a Factor
The bank’s equity outlook also considers recent movements in government bond yields.
JPMorgan suggested that the increase in yields may be approaching an oversold condition, potentially limiting further upward movement.
If bond yields stabilise as third-quarter earnings announcements begin, the strategists believe equity markets could advance towards year-end, with market activity reflecting greater appetite for risk.
The bank’s broader assessment is that corporate earnings and economic fundamentals could regain prominence in investor decision-making as the reporting season progresses.
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