Investing.com -- The S&P 500 (SPX) remains dependent on technology stocks to drive growth in the Q4 2024 earnings season, Barclays (LON:BARC) strategists said in a note Wednesday.
The performance in January often indicates the trajectory for large-cap US equities for the remainder of the year. According to Barclays’ analysis, a decline in January suggests a median return of +2.5% over the following 11 months, while a gain exceeding 1.5% typically precedes a median return of +11.4% for the rest of the year.
“Estimates imply SPX is still dependent on Tech to drive growth this season,” strategists led by Venu Krishna noted. They observed that downward revisions for sectors excluding technology (ex-Tech) are 300 basis points (bps) greater than average, indicating a bearish sentiment as the reporting season approaches.
Despite this, the consensus estimates suggest that most non-technology sectors are expected to see Q4 earnings per share (EPS) growth that falls short of long-term medians, potentially setting a low bar for upcoming quarterly results.
Strategists also cautioned that while year-over-year EPS growth for the S&P 500, excluding Big Tech companies, is anticipated to improve significantly in the first quarter of 2025, similar expectations for the fourth quarter of 2024 were not met due to negative operating leverage and subsequent negative revisions.
The consensus EPS forecast for the fiscal year 2025 has decreased by approximately one dollar since Barclays' annual outlook and now stands at $274, compared to their estimate of $271.
“Negative revisions thus far have been concentrated on 1H25,” the bank added
For Big Tech, Barclays strategists expect the group “to continue generating EPS growth well above long-term median levels despite some additional deceleration priced in for 1H25.”
The margin upside for the S&P 500 in the fourth quarter is also seen as dependent on the performance of these technology giants.