Buckle Up: The Biggest S&P 500 Earnings Release Is This Week The U.S. presidential election is dominating headlines as we enter the final stretch of the long race, and it’s clear that the market is more than ready to get it over with and know the winner… as are many of our analysts here at TradeSmith – myself included. But even with the election in the spotlight, there’s still a full week to go before the polls close and the results come in – and you’ll want to pay close attention, because there’s plenty of market-moving news on the way in the next few days outside of this huge event. For starters, with the release of third-quarter gross domestic product (GDP) data kicking off tomorrow, this week brings a series of economic reports that could shape the Federal Reserve’s approach to rate cuts in November and December. But also importantly, the S&P 500 is putting on a show right now: the main event of this earnings season. The Earnings Story So Far To date, about 40% of S&P 500 component companies have reported their quarterly financial results this earnings season. And so far, so good: 79% of the reporting companies have delivered profits above Wall Street’s expectations, with an overall profit beat rate 6.1% above estimates. Overall, earnings for the index are tracking at a year-over-year growth rate of 4.4%. Better yet, both earnings (up 6.1%) and sales (up 1.6%) are ahead of expectations: 
This means that if the current beat rate and magnitude of earnings surprises remains on course, the S&P 500 should end up posting a total third-quarter earnings growth of roughly 10% (the 4.3% estimate and the 6.1% surprise totaling 10.4%). Those are very strong results – results that are in line with the average profit growth of 9.2% seen across the first two quarters of 2024. And as you can see above, the biggest earnings growth is being reported by the Technology and Communication Services sectors. No surprise there. Meanwhile, the biggest profit surprises are coming from Consumer Discretionary (up 12.1%), Financial (up 9.7%), and Utility stocks (up 6.9%). All three of these sectors have surprise factors better than the overall S&P 500. But the results so far were just the opening act: The headliners have just stepped on stage, five of the “Magnificent Seven” mega-cap tech companies. The “Magnificent Seven” Takes the Stage As you read this issue, Alphabet (GOOGL) will have just reported its latest quarterly results, kicking off a series of high-profile tech earnings. Meta Platforms (META) and Microsoft (MSFT) will be released tomorrow after market close, and then both Amazon (AMZN) and Apple (AAPL) will conclude the show on Thursday. Between the economic data and these tech powerhouses, it could be a volatile week before the election. Additionally, plenty of non-tech, blue-chip stocks are also set to report over the next few days – including McDonald’s (MCD), Pfizer (PFE), Visa (V), AMD (AMD), Eli Lilly & Co. (LLY), Caterpillar (CAT), Merck and Co. (MRK), and Exxon Mobile (XOM), just to name a few. It’s a busy week… and one that could move stocks across multiple sectors. The five “Magnificent” tech stocks will draw the most eyes this week – because collectively, their earnings growth rate is declining from the big gains they’ve posted in recent quarters: 
As you can see, the Mag-7 as a group are forecasted to grow profits by 19.8%. That’s well above the growth rate of the S&P 500 overall. However, it’s still a sharp slowdown from the profit growth of 117% in Q1 and 46.9% in Q2 of this year. So, there’s less room for any disappointment. In fact, individual profit estimates for MSFT and AAPL have been revised downward since last quarter, while forecasts for AMZN estimates are unchanged. Really, it’s down to just two of the seven to carry the load with very strong profit growth rates: NVIDIA (NVDA) reports Nov. 20 and is expected to record a growth of 83.8%, while AMZN is expected to grow by 37.6%. In comparison, earnings growth from MSFT and AAPL look downright pedestrian at 3.9% and 7.5%, respectively. That’s roughly in line with overall S&P 500 growth expectations. But despite the slowdown, the fact is that these seven companies should report combined profit growth of 18.1% this quarter. Excluding them and the earnings growth rate for the remaining 493 stocks in the S&P 500 would be nearly flat – at just +0.1%. But when looking at current earnings estimates for 2025, however, the picture of profit balance improves: 
By the third and fourth quarter of 2025, the expected profit growth for the Magnificent Seven is still a robust 19%. But the contribution from the other 493 members of the S&P 500 is set to increase to 15.3% on average for the second half of next year. An expected profit growth in the mid- to high-teens next year is pretty impressive for the S&P 500. But if you really want to be amazed, forget the mega-caps – just take a closer look at the Russell 2000 small-caps instead: 
Stocks in the small-cap index are expected to grow profits by 44.2% in 2025, compared to just 15% expected from the S&P 500. Though, here’s a fair warning: Wall Street analysts have a habit of cutting profit estimates for the small caps as time goes on. Third-quarter earnings growth for the Russell 2000 is currently 38.3%, which is down from 42.6% at the beginning of October but still a fantastic growth rate. But before you go rebalancing your portfolio into the new year, you must pick and choose carefully because nearly half the stocks in the Russell 2000 index are unprofitable. One way to find solid small caps is by using our TradeSmith Screener tool to scan for profitable stocks in the Russell 2000 Index (with an EPS more than $0). And for good measure, you might consider adding filters to eliminate stocks with negative Free Cash Flow and poor Business Quality Scores. Mike Burnick’s Bottom Line: This earnings reporting season remains very top heavy, led almost entirely by the Magnificent Seven. That means there is little margin for error in terms of disappointment. And with five of the seven mega caps reporting between now and Friday, we’ll know soon enough. However, the profit contributions from the 493 non-Magnificent S&P 500 members should steadily increase in the quarters ahead, helping to shoulder more of the earnings growth burden. That said, your best bet for truly awesome earnings growth may be to focus on the small caps in 2025. Good investing,  Mike Burnick
Senior Analyst, TradeSmith P.S. With high-profile earnings results and critical economic data releases on deck this week, rising volatility makes it hard enough to prepare your portfolio for 2025. And with Election Day just a few days away, the stakes are higher than ever. That’s why our trusted affiliate, The Freeport Society, is hosting an exclusive live event designed to prepare you for the critical 24 hours following Election Day. We’re bringing together market experts like Charles Sizemore and Louis Navellier to help you navigate these turbulent waters, no matter what happens in the election’s aftermath. It all kicks off tonight at 7 p.m. Eastern. These experts will break down what’s coming and share proven strategies to help you learn how to position your portfolio for success in the coming weeks. With volatility comes opportunity, and after this event, you’ll be more than ready for what comes next. But this is your last chance to claim your spot before the event starts… So, click here to automatically secure your spot. You’ll be notified when the event is ready to begin. | 
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