Earnings Takeaways: Q3 2024

Here are the latest insights from Goldman Sachs Research on key issues facing company management teams.

As we close out the third quarter 2024 earnings season, Goldman Sachs Research analyzed company earnings calls to gain perspective on key issues facing company managements.

Over Q3, three key themes emerged from these calls: (1) policy uncertainty, (2) the consumer, and (3) artificial intelligence (AI). Here are the takeaways.

Overall, earnings were better than expected

As of November 15: 459 companies listed on the S&P 500 have released their Q3 earnings results, collectively representing 86% of the index’s market cap. Among these companies, 51% beat earnings estimates, while 14% missed.

Key themes heard on company earnings calls

1. Policy uncertainty

Policy uncertainty was top of mind as companies discussed the impacts of uncertainty around the election and trade policy on their businesses. Companies noted delayed capital markets activity, slower business activity, and caution around spending and investment as a result of uncertainty around the US elections.

In terms of investment, Goldman Sachs Research economists expect that the impact of potential tax policy changes, improved business sentiment following the elections, and tariff increases will ultimately be positive on net for capital expenditures (capex) spending in 2025. Companies generally discussed the potential impacts of tariffs on their businesses and plans in place to adapt to changes in trade policy.

Looking ahead, our economists expect President-elect Donald Trump to impose tariffs on imports from China that average an additional 20 percentage points to the effective tariff rate. During the trade conflict experience in 2018-2019, domestic-facing and defensive industries generally outperformed cyclical industries with elevated international business exposure.

2. The US consumer: mixed feelings

Goldman Sachs Research noted company commentary continued to reflect mixed sentiment on the state of the US consumer.

Several companies noted that the consumer remains healthy and resilient, pointing to continued wage growth and low unemployment. However, other companies noted that consumers continue to seek value and are mindful of their spending.

The share of S&P 500 consumer facing companies mentioning “affordability” on earnings calls has remained elevated as companies continue to focus on providing value for their customers.

Earlier in the year, recession fears and broader concerns about the health of the consumer led to underperformance of the Consumer Discretionary sector relative to the equal weight S&P 500. Since then, solid employment data, an improvement in consumer sentiment, and stronger economic growth expectations following the elections have contributed to renewed market optimism around the consumer.

Goldman Sachs Research found this optimism has led to the outperformance of the Consumer Discretionary sector relative to the equal weight S&P 500 since the start of August.

3. AI: continued enthusiasm 

The share of companies mentioning AI during the Q3’s earnings calls remains high at 42%. Commentary from hyperscalers focused on measuring results of AI related products and services alongside a continued focus on investing in AI infrastructure.

Outside of the hyperscalers, phase 3 companies – those with the potential to monetize AI by generating incremental revenues, primarily in software and IT services– are increasingly deploying AI tools internally and into their products, allowing employees and customers to benefit from AI-enabled tools.

Looking ahead

Goldman Sachs Research forecasts the S&P 500 index will rise to 6500 by year-end 2025, assuming continued US economic expansion and earnings growth of 11% in 2025.

S&P 500 index revenue growth is typically in-line with nominal GDP growth. Our strategists estimate a 5% sales growth for the S&P 500 in 2025 and believe it to be consistent with Goldman Sachs Research economists’ forecast of 2.5% real GDP growth and inflation decelerating to 2.4% by the end of next year.