Economic Update 1-16-2024
- Economic data for the week included consumer price inflation coming in a bit stronger than expected, but a slight improvement on a year-over-year basis compared to the prior month. On the other hand, producer price inflation came in a bit weaker than expected.
- Equities saw gains in developed markets, while emerging markets declined, led by weakness in China. Bonds fared positively as yields pulled back along with eroding inflation worries. Commodities were mixed for the week, with gold higher and crude oil lower.
U.S. stocks saw gains last week, with inflation results seeing mixed sentiment on the consumer side, while producer prices were a positive sign. Sector results were led by technology and communications up 3-5%, while energy and utilities lagged with negative returns of -2%. Real estate gained slightly along with a drop in interest rates.
Earnings season for Q4 began last week, with the big banks reporting first, as usual. It’s expected that some of Q3’s earnings strength was pulled forward and will dampen Q4 results. Per FactSet, Q4 S&P 500 year-over-year earnings growth is expected to come in at -0.1%; however, the last several quarters have seen an improvement of several percent as earnings season progressed, with downcast expectations having been exceeded. For Q4, the strongest sectors are expected to be communications, utilities, and consumer discretionary, with earnings growth of 20-40%, with energy and materials lagging, with earnings of -20% to -30%. Revenue is expected to run at about a 3% growth rate, led by 6% gains in real estate, technology, and communications. For the full year 2023, earnings growth is expected to be barely positive at 0.5%, well below average, although hopes for Q1 2024 remain near average (at 6%), and full year 2024 up near 12%. Full year estimates don’t provide much clarity about the impact on earnings from recession expectations, though, which could include a positive path throughout the year, or a dip and later recovery, as has been the case in the past. Very early earnings growth estimates for 2025 show an even better rate of 13%. While some watchers view these as a bit optimistic, stock prices have tended to follow earnings over time (short-term sentiment and valuation impact aside), which creates a better story than some are predicting.