The biggest S&P stocks have to do the heavy earnings lifting – Goldman

Profit growth for the broader market this earnings season will be down to the ten biggest stocks, according to estimates from Goldman Sachs.

“The 10 largest S&P 500 (NYSEARCA:SPY) (IVV) (VOO) companies are expected to grow sales by 15% year/year and post EPS growth of 32%,” strategist David Kostin wrote in a note. “In contrast, the remaining 490 firms are expected to grow topline by just 2% year/year and deliver EPS growth of -4%.”

The Q1 2024 bottom-up consensus estimates for the top 10 are:

1. Nvidia (NVDA) EPS y/y growth 406%
2. Amazon (AMZN) 175%
3. Meta Platforms (META) 91%
4. Eli Lilly (LLY) 58%
5. Alphabet (GOOG) (GOOGL) 25%
6. Berkshire Hathaway (BRK.B) 21%
7. Microsoft (MSFT) 15%
8. Broadcom (AVGO) 9%
9. JPMorgan Chase (JPM) 1%
10. Apple (AAPL) -4%

“Failure to meet elevated growth expectations sparked the downfall of the largest stocks at the height of the Tech Bubble,” Kostin said. “Concentration has exceeded the Dot Com Bubble highs, prompting investors to worry about the possibility of a ‘catch down’ from the largest stocks in the index.”

“Historically, periods of high concentration have been more often followed by a ‘catch up’ of the other stocks in the index rather than a ‘catch down.’ Should the largest stocks continue to deliver rapid growth, the probability of an acute ‘catch down’ is relatively slim.”

Looking to sectors, Utilities (XLU) is expected to post the greatest EPS growth, up 23% for Q1. NRG Energy (NRG) and PG&E (PCG) are expected to make the largest contribution to EPS growth in the sector, Goldman said.

Energy (XLE), down 27%, and Materials (XLB), down 24%, are forecast to see the biggest declines.

“Communication Services (22%), Info Tech (21%), and Consumer Discretionary (14%) are also expected to post strong growth in 1Q,” Kostin said. “The concentration of growth is most apparent in the Communication Services sector, where the median stock is expected to see EPS shrink by 3% in the quarter.”