Asset Management
03/04/2024 Market Strategy
March 04, 2024
We’re Not There Yet
A busy calendar of economic data as Q4 earnings season winds down suggests much to be revealed in the week ahead
Key Takeaways
- With 489 or 98% of the firms in the S&P 500 index having reported, results have been generally stronger than expected. At this late date in the season, earnings are up 7.8% from a year earlier on 3.9% revenue growth. Prior to the season’s start, a bottom-up analysis put expected growth at 1.3% YoY.
- The S&P 500 is up 7.7% in 2024 through March 1, with nine sectors posting positive returns. In our view, this shows a continuation of a broadening in the rally that began on October 27 of last year.
- We examine returns on the S&P 500 and its sectors since the end of 2021 and find that for all the worry about the turbo-charged run-up in equity prices in recent months, the gains since the end of 2021 are relatively modest.
The stock market stateside starts this week with two indexes at new record highs reached last Friday: The S&P 500 and the NASDAQ Composite.
Bears appear to remain in capitulation mode, nervous investors seem to be finding confidence to stay in stocks, and the leveraged crowd appears to be learning to accept the likelihood that the Fed has no intention of cutting rates soon with last week’s PCE deflator data for January showing inflation still sticky and the central bank’s inflation target rate still at some distance away.
In our view, much of the increase in sentiment and confidence which has sustained the current bull run is driven by fundamentals too strong to argue against that are reflected in economic data which continues to show resilience in business, consumer spending and jobs growth.
At least some acknowledgement among investors that the Federal Reserve two years into a rate hike cycle (consisting thus far of 11 rate hikes and five skips/pauses) has managed to avoid pushing the US economy into a recession has contributed to market performance this year as well.
There’s likely room for a further broadening of this year’s stock market rally and opportunity to see equities further climb the proverbial wall of worry.
Earnings up 7.8% in Q4 from a Year Earlier
Q4 earnings season results for the S&P 500 through last Friday have exceeded expectations with earnings and revenue growth up 7.8% and 3.9% year over year, respectively (before the season, FactSet’s bottom-up earnings forecast was for 1.3% growth).
Of the benchmark’s 11 sectors eight are showing positive earnings growth with just three showing negative earnings growth.
Of the eight sectors showing positive earnings growth four sectors have posted double-digit earnings growth (communications services, utilities, consumer discretionary and information technology).
The three sectors of the S&P 500 that have posted double-digit negative earnings growth this earnings season are energy, materials and health care.
According to data compiled by Bloomberg Intelligence some 76% of the S&P 500 companies that have reported Q4 results thus far have surprised to the upside, edging out a 10-year average of 74% exceeding expectations.
With Stocks at New Highs, Will Gains Broaden?
The S&P 500 closed at 5,137 last week hitting its 15th record high for the year. With the benchmark having closed higher on the week in seven of the nine weeks of this year market participants will pay close attention to a hefty tranche of economic data scheduled for release this week that culminates in the jobs, unemployment, and wage figures due on Friday.
For all the attention the turbo charged nature of the current bull run has garnered in our view it seems much less dramatic if one considers the performance of the S&P 500 and its 11 sectors from the end of December, 2021 through last Friday.
That’s a fourteen-month period which includes a bear market in 2022, a return to a bull market in 2023, and a continuation of the latter move into the first two months of this year.
The illustration that follows below suggests to us a time not so much reflecting irrational exuberance but rather a period of modest performance by the benchmark (up 7.8% in the period illustrated), and certainly a broadly mixed performance among the 11 sectors hinting to us that there’s likely room for further broadening of this year’s rally and opportunity to see stocks further climb the proverbial wall of worry.
Name:
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
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