The onset of the fourth-quarter earnings season is met with cautious sentiments on Wall Street, marked by a lukewarm mood. Following a robust end to 2023, the new year witnessed a stumble in stock performance. Notably, Apple, often considered a market indicator, faced two downgrades within the past week due to concerns about decelerating growth. Anticipated bets on a March interest rate hike from the Federal Reserve have also seen a reduction.
As the reporting season kicks off with major banks this Friday, analysts have notably lowered their earnings projections for S&P 500 companies, signaling a departure from the trend seen in the previous quarter, which boasted nearly 5% year-over-year growth. Current consensus estimates suggest a more modest 1.3% growth.
Morgan Stanley’s Chief Investment Officer, Mike Wilson, sees the fourth-quarter results as a pivotal test for investor confidence in the economy avoiding a recession amid decreasing inflation—a scenario often referred to as the “soft-landing trade.”
Goldman Sachs’ Chief Equity Strategist, David Kostin, remains optimistic, expecting S&P 500 firms to benefit from ongoing robust economic growth and diminishing input cost pressures. Kostin’s team places consensus expectations for earnings growth at 3% for the fourth quarter.
However, Julian Emmanuel of Evercore ISI offers a reminder that not all companies emerge as winners during earnings seasons. Recent disappointing reports from Nike, FedEx, and Oracle led to double-digit stock declines, emphasizing the importance of stock selection in this uncertain environment.
Bank of America sees the upcoming reporting period’s fundamentals as crucial to its projection that the S&P 500 will reach 5,000 by the end of 2024. The firm believes earnings turned a corner in the third quarter and continued on a positive trajectory in the fourth quarter.
Deutsche Bank’s Chief US Equity Strategist, Binky Chadha, anticipates “big beats” surpassing the “pessimistic consensus.” Chadha highlights that mega-cap growth and technology, drivers of the 2023 rally, are the only sectors whose expectations haven’t been revised downward in recent months.
Despite positive expectations for the fourth-quarter earnings season, analysts like Chadha acknowledge that the market rally might be tempered by the S&P 500’s solid performance since the previous earnings season and current elevated equity positioning.
