The S&P 500 Index advanced 1.91 per cent in August. For the first eight months of the year, the it surged 9.84 per cent.
Market strength was broad-based with nine of the 11 sectors delivering positive price returns in August. The leading sectors were materials, health care, communication services and consumer discretionary with gains of 5.6 per cent, 5.3 per cent, 3.6 per cent and 3.4 per cent, respectively. The two sectors in the red were industrials and utilities, which declined 0.2 per cent and 2 per cent, respectively.
The top 10 performers in the S&P 500 Index during the month were:
- Paramount Skydance Corp. (PSKY-Q), up 25 per cent
- Albemarle Corp. (ALB-N), up 25 per cent
- UnitedHealth Group Inc. (UNH-N), up 24 per cent
- Intel Corp. (INTC-Q), up 23 per cent
- Humana Inc. (HUM-N), up 22 per cent
- Idexx Laboratories Inc. (IDXX-Q), up 21 per cent
- Dayforce Inc. (DAY-N), up 21 per cent
- Viatris Inc. (VTRS-Q), up 21 per cent
- APA Corp. (APA-Q), up 20 per cent
- Newmont Corp. (NEM-N), up 20 per cent
The second-quarter earnings season was strong. According to a report from LSEG published on Aug. 29, of the 489 companies in the S&P 500 Index that have reported results, 80 per cent have beat the Street’s expectations, 16 per cent have reported earnings below expectations, while 5 per cent have reported earnings in line with expectations. Overall, year-over-year earnings growth is expected to come in at 13.2 per cent in the second quarter.
Importantly, earnings guidance is better than historical levels. For the upcoming third quarter, 64 companies issued negative earnings preannouncements, compared to 45 companies that provided positive outlooks - a 1.4 to 1 ratio. This compares with a 2.1 to 1 ratio over the trailing four quarters.
Earnings growth forecasts have ticked higher for this year. For the third quarter, earnings growth of 8.4 per cent is forecast, unchanged from last month. Year-over-year earnings growth for the fourth quarter is expected to come in at 7.5 per cent, up from last month’s 7 per cent forecast. Year-over-year earnings growth is anticipated to come in at 10.5 per cent in 2025, up from 10 per cent forecast last month, climbing to 13.4 per cent in 2026, which is unchanged from last month.
According to the LSEG report, the forward four quarter price-to-earnings multiple for the S&P 500 stood at 22.9 times, up from 22.3 times as of August 6.
Now, here’s a look at analysts’ target prices, recommendations, forecast returns and yields for all securities in the S&P 500 grouped by sector and ranked according to their expected price returns (excluding dividend and distribution income). The posted target price for each security is an average of all available target prices from analysts. A target price typically reflects an expected share or unit price 12 months from now based on an analyst’s financial modelling, such as a discounted cash flow or sum-of-the-parts model. Data is as of Sept. 2.
It’s important to note that high target prices, which imply stellar returns that seem unbelievable may be just that - unrealistic. At times, when a stock price falls analysts may maintain their bullish expectations, inflating the forecast return. In addition, an outlier (extreme target price) can skew the average target price, to the upside or downside, particularly when the number of analysts covering a stock is low. Don’t let a huge projected gain lure you into a position – it is critical to look at the company and industry fundamentals.