We want to thank our clients and friends that participated in our fundraiser event for “Scoot to the Stars” dog rescue charity here in Reno. We had a fun afternoon last Friday with the dogs in their wheelchairs and we really appreciate the generosity of the participants. Thank You!

Now to the markets – Fourth quarter earnings season is winding down with only about a dozen companies in the S&P 500 left to report. After a slow start delayed by messy bank results early on, corporate America picked up the pace and ended up delivering results well ahead of expectations. The “Super Six” was part of the story — the Magnificent Seven minus Tesla (TSLA) — but resilient profit margins are also noteworthy. 

SOLID RESULTS AFTER A SLOW START – The bar was lowered heading into earnings reporting season, setting corporate America up for some solid upside. Specifically, fourth quarter earnings estimates for the S&P 500 were cut by 6.8% from September 30, 2023, through January 12. LPL Research highlighted U.S. dollar weakness and healthy Korean export activity as indicators of potential upside. At the same time, however, mixed economic data, commodity price weakness, and challenges in the healthcare sector suggested upside might be capped. In the end, with just a handful of companies left to report, the S&P 500 delivered the 5% earnings growth and about five points of upside that LPL predicted. Strong results for mega cap technology and resilient profit margins helped offset the drag of special bank charges to replenish the FDIC deposit insurance fund.

The strong earnings season and resilience of estimates increase the chances that LPL Research’s forecast for S&P 500 EPS in 2024 at $235 is too low. Also consider they increased their forecast for U.S. economic growth this year, from 1% to 1.4% (based on gross domestic product). Moreover, artificial intelligence tailwinds remain firmly in place, last year’s healthcare and natural resources earnings declines are poised to reverse, cost pressures continue to ease, and companies have maintained a fair amount of pricing power.

On the flip side, the U.S. economy is poised to slow some this year. LPL’s outlook for European economic growth is lackluster, and China’s economy faces significant headwinds and may not even come close to the Bloomberg consensus GDP growth forecast of 4.6% for 2024. Add to that, LPL doesn’t have a lot of conviction in a weak U.S. dollar view, a wildcard for earnings, and its only early March. Bottom line, they will hold their estimate where it is for now while acknowledging both greater confidence that $235 can be achieved and an upward bias.

Strong results were needed to help justify rich valuations, and corporate America came through. If companies can deliver near-consensus earnings estimates in 2024, buoyed by big tech, and the Federal Reserve can engineer a soft landing as inflation continues to gradually ease, then LPL believes stocks stand a good chance of not only adding to year-to-date gains through year-end, but also keeping the price-to-earnings ratio (P/E) around 20, which is viewed as fair based on LPL Research’s macroeconomic outlook. Contact Mark or Elise for any additional information.