S&P 500: 5000 Stall Continues
U.S stock markets are closed today for the Presidents’ Day holiday. The S&P 500 fell -0.4% as gains in value sectors, banks and energy were offset by weakness in year-to-date leading sectors, technology, and communication services.
No surprise to the OHFG investment team that last week’s economic data all came back to inflation. We’ve warned about this being the risk for the 1st quart as inflation is seasonal and our government data is both inaccurate and lagging. The U.S. CPI report was bad through the eyes of others. Headline inflation came in stronger than expected at 3.1% y/y in January, while core inflation was also above the bar at 3.9% y/y. Lagging metrics such as “rents” were the main culprit as the data groups at the BLS have changed their calculations. These calculations do NOT reflect market reality from sources such as Zillow and other real-time outlooks.
Core PCE is still tracking reasonably well for January. Meanwhile, producer prices were stronger-than-expected in the month as well and, while not usually a big market mover, it didn’t look good against the CPI backdrop. PPI ex-food & energy rose 0.5% in January and accelerated back to 2% y/y. Elsewhere, retail sales were – 0.8% in January, but consumer confidence and inflation expectations, both lagging metrics, from the University of Michigan offered positive surprises.
This weekend, Goldman Sachs lifted their 2024 S&P 500 price target raising their S&P 500 year-end 2024 index target to 5200 (from 5100), reflecting a 4% price return. They also raised their top-down S&P 500 EPS forecasts to $241 from $237 in 2024 and $256 from $250 in 2025, representing 8% and 6% growth, respectively. They expect the Information Technology and Communication Services to post the strongest earnings growth among S&P 500 sectors in 2024.
We are close to exiting earnings season, and so far, the results look good. Overall, 79% of the companies in the S&P 500 have reported actual results for the quarter to date. 75% have reported actual EPS above estimates, which is below the 5-year average of 77% but above the 10-year average of 74%. In total, companies are reporting earnings that are +3.9% above estimates, which is below the 5-year average of +8.5% and below the 10-year average of
+6.7%. Positive earnings surprises reported by companies in multiple sectors (led by the Industrials and Information Technology sectors) were the largest contributors to the increase in overall earnings for the index during the past week.
In terms of revenues, 65% of S&P 500 companies have reported actual revenues above estimates, which is below the 5-year average of 68% but above the 10-year average of 64%. In aggregate, companies are reporting revenues that are 1.2% above estimates, which is below the 5-year average of 2.0% and below the 10-year average of 1.3%.
Positive revenue surprises reported by companies in multiple sectors (led by the Financials sector), partially offset by negative revenue surprises reported by companies in the Utilities sector, were the largest contributors to the small increase in overall revenues for the index over the past week.
The forward 12-month P/E ratio is 20.4, which is above the 5-year average (19.0) and above the 10-year average (17.7). It is also above the forward P/E ratio of 19.5 recorded at the end of the fourth quarter (December 31).
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