Another Solid Week of Earnings, While Resistance From Equal Weighted Index Remains

Early earnings season data remains strong. Last week, 28 megacap companies reported Q1 results, with 86% beating EPS estimates and 79% topping sales expectations.

The average EPS surprise rate (86.9%) was skewed by and  remarkable beats of 1350% and 795%, respectively. But even if we remove those unusually large beats, we still get a respectful 8.0% average EPS surprise rate.

The average sales surprise rate for the week came in at 2.1%, which is above the recent average. Led by big surprises from Intel, Newmont (NYSE:), Texas Instruments (NASDAQ:), and GE/ GE Vernova.

Let’s just take a second to appreciate the rebounds in these old-school staple names. After going nowhere for most of the last 10 years, Intel has risen over 240% over the last 12 months and broken out of the long term downtrend. While GE Aerospace (NYSE:) and spinoff GE Vernova has almost 10xD over the last few years. In fact, over the last 5 years, GE has outperformed all the mag 7 names minus GE (NASDAQ:). (chart below)

Who could have predicted this outcome?!

Now that 28% of the companies in the S&P 500 index have reported Q1 results, the forward EPS estimate continues to impressive ascent. This extends the streak to more than a dozen consecutive weeks of increases, and is now up 14.5% already this year alone.

The blended (adding the results of the companies that have reported plus the estimates for the companies that have yet to report) EPS growth rate for Q1 is now 16.1% and still on track to hit 20%.

But it’s not just earnings growth; top-line blended sales growth for Q1 is already 9.7%, and on track to hit double digits. This is the strongest top-line growth since the economy reopened from the COVID shutdowns.

The S&P 500 index has already broken above the prior all-time highs made back in January. But the has yet to do so. The above chart shows the equal-weighted index retesting the prior highs at 8306 this week, but failed to break out on the first attempt. This will be the final resistance level to watch going forward.

Some people might say that this divergence has some bearish implications in the very short term. I’m not willing to go there. Despite the divergence, the equal-weighted index is actually still outperforming the market-cap-weighted index by more than a full percentage point so far this year. Nevertheless, the sooner we can break above the final resistance on the equal-weighted index, the better.

We are now entering the heart of earnings season. About one third of the index will report Q1 results, including 5 of the mag 7 names. By the end of the week, we should have a really good feel for how the rest of the year will play out.