The Company Bringing Down The S&P 500

The majority of companies have reported their earnings within the S&P 500. Q1 is considered to have been very solid, with the exception of one company: drugmaker Bristol Myers Squibb (BMY).

Last month, Bristol Myers Squibb reported a major loss due to charges related to a series of acquisitions and a cut to its profit forecast for the year. With a negative outlook for Bristol, investors have lost confidence in the company, at least in the short term, keeping the stock in the red year-to-date.

Stunted S&P 500 Growth 

With over 92% of companies finished with their reporting, the index is on pace for a 5.4% earnings growth compared to the year-ago quarter. This would be the largest year-over-year earnings growth since the second quarter of 2022, a time in which stocks rebounded from the pandemic. If you were to take out Bristol, the pace would jump to 8.3%, which would be a massive difference in growth. 

Some More Laggers

The blame can’t all be put on Bristol. The Healthcare sector struggled in Q1 of 2024, with an earnings decline of 25.4% from the same quarter a year ago. Alongside Energy, the sector has had the worst performance of all sectors within the S&P 500 this quarter. If you take out a couple of other companies from within the space, such as Pfizer (PFE) and Gilead Sciences (GILD), the S&P 500 would be on pace for an earnings growth of 9.7%. By removing three companies, the S&P 500 earnings growth practically doubles. 

Stock Price Non-Correlation

Interestingly, declining earnings haven’t necessarily done much to weigh down any particular sector. The Healthcare sector has actually risen by a modest 1.4% in the past month, the fourth-best performance of any sector and better than the S&P 500 return of 1.2% over the same time period. Earnings growth and stock prices are not lining up.

Future Growth for Bristol and the Healthcare Sector 

Another interesting piece of data to note is that earnings declines are not expected to continue within the sector. After Bristol reported its massive loss attributed to its acquisition of Karuna Therapeutics, analysts expect the company to bounce back in the second quarter. Earnings per share are expected to be at $1.69, which is still slightly down from the year-earlier period of $1.75.

The overall Healthcare sector is expected to rebound in the second quarter as well. Analysts predict that the sector is expected to produce the second-highest year-over-year growth of any sector in the second quarter. Wall Street is projecting an increase of 17.2% for the sector. 

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