A single stock is hindering the S&P 500’s earnings growth

The S&P 500 index has seen a strong Q1 earnings season overall, with one notable exception: drugmaker Bristol-Meyers Squibb (BMY). The company reported a significant loss per share in the first quarter due to charges related to acquisitions, leading to a cut in its profit forecast for the year.

Despite this setback, the index is still on track for 5.4% earnings growth compared to the year-ago quarter, the largest year-over-year growth since the second quarter of 2022. When excluding Bristol-Meyers Squibb, the pace jumps to 8.3%, according to FactSet senior earnings analyst John Butters.

The Health Care sector has experienced a 25.4% decline in earnings from the same quarter last year, matching Energy for the worst performance in the S&P 500. However, when removing a few key companies like Pfizer and Gilead Sciences, the index’s earnings growth would rise even higher to 9.7%.

Despite the declining earnings in the Health Care sector, the overall performance has remained relatively stable, with a modest 1.4% increase in the past month. Analysts expect a rebound in the sector in the second quarter, with Bristol-Meyers Squibb projected to bounce back and overall sector earnings expected to increase by 17.2%.

This positive outlook for the Health Care sector, along with expected rebounds in Energy and Materials, is seen as a potential tailwind for stocks, according to FundStrat’s head of research Tom Lee. Overall, the S&P 500 is poised for continued growth as companies navigate the changing landscape of the market.