New York City, NY – The latest earnings season has shown a significant decline in both earnings and sales surprises, impacting major indexes such as the S&P 500 and the Nasdaq 100. This trend has led to a downward revision of earnings estimates, raising concerns about the underlying fundamentals supporting the recent market movements.

For example, out of the 100 companies in the Nasdaq 100, 82 have reported negative earnings surprises and weaker sales performance – the worst since late 2022. Similarly, in the S&P 500, 464 out of 500 companies have reported lower earnings surprises and weaker sales performance compared to previous quarters.

These developments have prompted downward revisions in earnings estimates for 2024. Earnings per share for the S&P 500 have been adjusted from $243 to $240.64, primarily due to shrinking profit margins. The Nasdaq 100 has also seen a 3% decrease in earnings estimates, despite marginal improvements in profit margins.

Looking ahead to 2025, there are concerns that margin estimates for both the S&P 500 and the Nasdaq 100 may be overly optimistic. Forecasts suggest a significant expansion in profit margins, raising questions about the sustainability of such growth in light of economic conditions and inflation levels.

The potential risk of inflated margin estimates impacting earnings projections for both indexes looms large, with estimates for earnings per share possibly needing downward adjustments. This could have implications for the overall market performance and valuation of large-cap market-weighted indexes in the future.

Furthermore, the recent market rally has been largely driven by expanding price-to-earnings multiples rather than improving fundamentals. This raises concerns about the sustainability of the current market optimism and the potential disconnect between stock prices and underlying company performance.

Overall, the shifting landscape of earnings estimates and market valuations points to a complex and challenging environment for investors and market participants. Navigating the uncertainties surrounding future earnings and margins will be crucial in assessing the true health of the market and making informed investment decisions moving forward.