It has been a relatively uneventful week for the stock market, leaving both bulls and bears searching for a catalyst. While the S&P 500 finished the week with a modest 0.2% gain, the Dow Jones Industrial Average remained essentially flat and the Nasdaq Composite saw a small rise of 0.7%.
The much-anticipated November jobs report, which was expected to have a significant impact on the market, turned out to be a nonevent. Although the numbers were stronger than expected, revisions to earlier months, the effects of strikes, and other factors offset any notable gains. Nevertheless, the data suggests that the economy is on a positive trajectory, potentially avoiding a recession, and raising the possibility of an upcoming rate cut by the Federal Reserve.
Currently, the stock market finds itself in a state of anticipation. With only a few weeks remaining in 2023, the S&P 500 has already experienced a year of growth, gaining 19% thus far. It now stands at just 5% away from reaching its closing high of 4796, achieved in early January 2022. However, for the market to break through this resistance, it will require a significant catalyst capable of convincing sellers, who have consistently stepped in at just below 4600, to reconsider their position. The market eagerly awaits solid fourth-quarter earnings as the potential spark it needs to continue its upward climb.
Earnings Outlook for S&P 500: An Opportunity for Growth
With the end of August marking a shift in analysts’ estimates, the anticipated growth of aggregate S&P 500 earnings has slightly decreased. Nonetheless, this revision in expectations presents a lower bar for companies to surpass. Consequently, there is potential for fourth-quarter earnings to exceed current projections, as noted by 22V Research’s Dennis DeBusschere.
Economic Factors and Sales Growth
While concerns of a looming recession persist, sustaining minimal growth in the real gross domestic product (GDP) within the low-single-digit range could validate the current 2024 S&P 500 sales growth estimate of 5%. This reasonable projection is further supported by a gradual rise in costs, including materials and wages. In such a scenario, profit margins are expected to expand, while stock buybacks are likely to contribute to a projected 12% increase in earnings, amounting to $244 next year.
The Influence of Economic Stability
When considering the market’s response to earnings per share (EPS) beats, it is crucial to assess the overall economic climate. While the market tends to overlook these beats when an economic downturn is anticipated, it often rewards them when growth remains stable. Spencer Hakimian from Tolou Capital Management emphasizes that if the economy avoids a recession, the S&P 500 could experience a flourishing year in 2024.
In conclusion, although adjustments have been made to earnings and sales estimates, this period presents an opportunity for companies to surpass expectations. The overall outcome heavily relies on economic stability and growth. Should the economy remain robust, the S&P 500 is poised for a promising year ahead.
Look Out for a New High in Stocks
As we approach the fourth-quarter earnings season, which is just a month away, investors should keep an eye out for the upcoming developments. There are several key events that need to be navigated before the season begins, including the December Federal Open Market Committee meeting and November’s inflation report. These events could introduce some volatility into the market.
However, despite any potential bumps along the way, it’s important to remember that a new high is likely on the horizon. So, stay tuned and wait for it.