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Will Earnings Deliver on the Hype?
Q4 2023 earnings are starting to hit the tape. From mine, if the market is to continue rallying – it’s less about inflation and the Fed – it’s whether corporate America will deliver on 12% earnings growth in 2024. Coming into earning’s season – my view 12% felt ambitious – given the slowing economy and relative health of the consumer. This post talks more to the concentration in the market – the relative influence from NVDA – and why diversification will be key this year.
Equal Weight ETF to see Mean Reversion
The euphoria in markets continued last week – with the S&P 500 notching a new record high – taking out the 4817 high from Jan 2022. Thanks largely to the Fed signaling peak rates in combination with inflation trending lower – markets now believe a ‘soft landing’ is possible. That is, inflation ultimately trends back to the Fed’s objective (2.0%) without any negative impact to the broader economy (e.g. widespread job losses). We will see how that turns out – as the Fed is attempting to thread a narrow needle. From mine, a soft landing remains a lower probability outcome. However, I believe there is still opportunity… and it’s not with large cap tech stock.
EPS Growth of 12% with 6 Rate Cuts? Really?
Over the past couple of months – I’ve been trying to reconcile the following: (i) can the market achieve 12% EPS growth; and in parallel; (ii) see the Fed cut rates 5 or 6 times this year? I ask this question as that’s what the market is pricing in. It feels like a contradiction. Can we achieve both? For example, if the Fed is forced to cut rates aggressively – what does that tell us about the health of the economy? I would assume it signals an economy in need of emergency assistance.
Market Confident on Imminent Rate Cuts Despite Inflation Print
Today we received the final monthly inflation report for 2023 – ahead of the Fed’s next policy meeting Jan 30-31. Markets were expecting very good news… but did they get it? On the surface, both prints were slightly higher than expected. However, we saw a mostly muted reaction in both bond and equity markets. Bond yields fell – with the market maintaining its 68% expectation of a rate cut as early as March.