Earnings season is in full swing, and the next two weeks will be especially busy, with over 60% of the S&P 500’s market cap set to report. 

In investing, expectations are everything. So it’s important to know where they are—especially at these valuation levels. For the 3rd quarter, the top 10 largest companies by market cap are projected to deliver year-over-year earnings growth of 30%. Excluding them, the blended earnings growth rate for the remaining 490 S&P 500 companies is expected to be -4.5% for Q3 2024. So it should be no surprise that, at the sector level, tech is expected to be the biggest driver of earnings growth, while energy is set to be a drag (-1.6% growth).

Full-year 2024 earnings growth currently sits at 9.1%, with analysts hoping for a resurgence below the top 10 in Q4. In fact, the expected earnings growth for the top 10 in Q4 is 10.4% vs 15.4% for the remaining 490. This would be the first time in at least 6 quarters that earnings growth is expected to see broad-based contributions vs. the concentrations.

A side note on valuations. 

Valuation multiples, as measured by consensus forward P/E, have moved higher with the market rally.

If earnings end 2025 as expected—currently pegged at $274 (15% growth)—hitting the 20% chance we put on a 6,100 target would push valuations close to 22.3x earnings, on par with high 2020 COVID-era levels. We also have an election and soon after, greater deficit tensions on the horizon, the latter of which I'm most concerned.  I had a 5,800 call on the S&P (see mid year outlook), with a 20% chance of getting to 6,100. As we are past 5,800 now, I re-considered my target. Given the valuations and near term risks, while not out of the realm of possibilities, an S&P 500 at 6,000 at year end would probably be closer to current valuations than 6,100.