JPMorgan Anticipates Broader Q3 Earnings Growth Across US and European Markets

JPMorgan strategists predict that third-quarter corporate earnings will support equity markets, indicating that profit growth is expanding beyond companies related to artificial intelligence (AI) and across a wider array of sectors. A team led by Mislav Matejka noted that while earnings expectations remain high at the index level, they moderate when excluding individual contributions from specific companies. They suggest that the upcoming reporting season could redirect investor focus to corporate fundamentals following recent market fluctuations.

For the S&P 500, consensus earnings per share forecasts suggest a 24% increase in the third quarter, with some estimates from FactSet and LSEG indicating 30%, adjusted for a unique tax charge at Meta (NASDAQ:META). However, when excluding Nvidia (NASDAQ:NVDA) and Micron Technology (NASDAQ:MU), expected growth decreases to 15%. The median S&P 500 company is anticipated to report an 8% increase.

In Europe, consensus forecasts show expected earnings growth of 19%, dropping to 11% when energy companies are not included. The median earnings growth is estimated at 9%, paired with median revenue growth of 7% for both the S&P 500 and the Stoxx 600. JPMorgan asserts that these figures imply that earnings expectations across the broader market are less strenuous compared to the headline index forecasts.

The bank cited improvements in global purchasing managers' indices throughout the third quarter, with several measures hitting multi-year highs. JPMorgan's proprietary earnings indicator, which typically precedes reported earnings by about two quarters, continued to rise, supporting their outlook for ongoing growth in the next two reporting periods. The proportion of global companies reporting accelerating earnings growth is nearing record levels.

While AI continues to be a major contributor to US corporate earnings, JPMorgan emphasizes that profit growth is increasingly spreading across various industries. In Europe, the bank anticipates operating margin expansion will enhance earnings growth, forecasting earnings before interest and taxes as a percentage of sales at 14.4% this year, which is roughly 250 basis points higher than the 2019 level.