Morgan Stanley’s analysts said that interest rates are likely to remain as the primary driver influencing equity-index performance.
“As 2024 progresses, we see stock prices being more dependent on growth outcomes though rate volatility is likely to continue to be a driver to watch throughout the year,” a team led by analysts wrote in a note.
The consensus estimate for 4Q 2023 earnings per share (EPS) has seen a 7% decline in the past three months, leading to an expectation of flat year-over-year EPS growth. Despite this downward revision, a mid-single-digit EPS beat rate is anticipated, emphasizing the potential for companies to outperform lowered expectations.
Looking ahead to 2024, health care, tech, and communication services sectors are predicted to exhibit the highest earnings growth. Within these sectors, margins are expected to be a significant driver for health care and communication services, while top-line performance will play a more critical role in tech earnings growth.
To gauge corporate guidance, strategists are focusing on earnings revisions breadth across industry groups over the next several weeks. Positive inflections in revisions breadth have been observed in cyclical sectors like transports, diversified financials, autos, banks, and materials during the past two weeks.
Conversely, areas such as insurance, telecom, media & entertainment, consumer services, and household products have shown relative weakness, providing insights into the varied dynamics across different sectors in the current market landscape.