The first quarter 2024 earnings season is here. As usual, consensus forecasts have decreased significantly in recent months, after a few quarters in which behavior has been absolutely unstoppable on the rise. For companies in the S&P 500 index, the consensus now calls for a 3% year-over-year growth rate, up from 10-12% forecast last summer. For Europe, the year-on-year growth rate for the same period is down 11%.
Now Wall Street seems to focus on the evolution of inflation, other macroeconomic data and geopolitical conflicts. In recent days, the rise in the monthly CPI to 0.4% has not gone down well, fueling fears that the interannual rate will rise above 4% again when summer arrives, nor has the publication of retail sales. The latest reading was for growth of 0.7% monthly, compared to the 0.4% expected.
And what has happened when observing these parameters? That investors fear that inflation will heat up again, taking into account that four consecutive months of increasing values have already passed in this scheme. The S&P 500 suffered the biggest correction since December 2023. In addition, penalized by the powder keg that the Middle East has become, with Iran’s attack on Israel last Saturday.
However, the presentation of the accounts of the listed companies seems that it could act as the definitive actor who changes the film or leaves it as it is. A recent report from JPMorgan explains how, in reality, this event that is going to grab the headlines next month, can be absolutely definitive. In this sense, excluding the magnificent 7 from the equation, the S&P 500 earnings per share growth expectations are completely negative for the fifth consecutive quarter, with a decrease of 2.6% year-on-year.
But unlike in recent times, activity momentum has strengthened during the quarter, as seen in the rise in global PMIs. “THIS Improvement, Combined With the Reduction in the Critical Rate of Returna to the Decrease in Expectations, Suggests That Profits Will Be Better, Highlights In I. JPMorgan REPORT, Warning That The Quarterly Results Could Be A Catalyst For The Sentiment of the investors.
Of course, the probable improvements in earnings would not necessarily mean that equities will advance in the coming days. In the opinion of the American investment bank, this would be due to the fact that the market has already appreciated strongly during the first quarter, since a large gap has opened between the Federal Reserve’s forecasts and the levels of the Wall Street indices.
“The risks of interest rates rising for the ‘wrong reason,’ the Federal Reserve’s pivot completely reversing, and inflation remaining too high are high,” JPMorgan warns in its report. Geopolitics could escalate quickly, and any escalation could be completely damaging to stock markets.
“In view of these concerns, positive results will be crucial to try to support the market, which has already suffered a significant reduction in risk premiums,” says the North American financial institution. In addition, consensus expectations point to a very sharp rise in profits in the coming quarters, from the $55 expected for the first period of the year in the S&P500 to $65 in the fourth quarter, which represents an increase of almost . 20%.
Be careful with the forecasts
On earnings issues, JPMorgan says prices are likely to soften and revenue growth will return to normal. “Our analysis focusing on what CEOs say in presentations and related news shows that price sentiment is tense, and is likely to fall from here. The guidance for the next few quarters could be disappointing and companies could start talking more about cost cutting,” he warns.
The analysis rounds it off with a sectoral approach: “The rebound in raw material prices could favor the profitability of the respective sectors… the possible improvements in profits,” he describes.
On a regional level, the US financial firm says the period in which US profits outpaced those of the euro zone could be coming to an end. “Relative momentum in US and Eurozone PMIs is likely to be peaking, suggesting that relative earnings per share performance may also be changing,” he concludes.
