Slow Start

The S&P 500 Index snapped its nine-week winning streak to open the year down 1.5%. The other major benchmarks also closed lower with the Dow -0.6% and the NASDAQ -3.1%. The S&P 500 Index was led by the Health Care, Utility, and Energy sectors, while the Technology, Consumer Discretionary, and Industrial sectors lagged. The 10-year U.S. Treasury note yield increased to 4.042% at Friday’s close versus 3.860% the previous week.

A combination of the Federal Open Market Committee (FOMC) minutes from its December meeting and a more robust December Employment Situation Report have shifted the probabilities of an initial 0.25% rate cut in March to 60.9% from 73.4% last week, based on CME Fed funds futures. In December, the U.S. produced 216,000 new jobs versus an expectation of 170,000.

Fourth quarter earnings reports begin at the end of this week. Current fourth quarter expectations for the S&P 500 Index are earnings growth of 5.2% and revenue growth of 2.6%. For full-year 2023, S&P 500 Index earnings are expected to grow by 3.1% with revenue growth of 1.9%. For full-year 2024, earnings are expected to grow by 11.1% with revenue growth of 5.1%.

In our Dissecting Headlines section, we look at earnings growth projections for the S&P 500 sectors heading into the fourth quarter reporting period.

Financial Market Update

Dissecting Headlines: Fourth Quarter Earnings Forecast

For the fourth quarter of 2023, S&P 500 earnings growth is currently forecast at +5.2%. Data from LSEG I/B/E/S shows seven of the eleven sectors are forecast to show year-over-year earnings growth. By sector, the Utility sector is expected to have the highest year-over-year growth at +49.4%, followed by the Communication Services sector at +48.8%, Consumer Discretionary sector at +21.9%.  Rounding out the growing sectors are the Technology sector at +16.7%, Real Estate at 11.0%, Financials at +8.4%, and Consumer Staples at +1.8%. The four sectors expected to show a decline in year-over-year earnings growth are the Energy sector at -24.5%, Materials at -20.3%, Health Care at -18.5%, and Industrials at -1.6%.

Revenue growth is currently forecast at +2.6%. The highest revenue growth is expected in the Real Estate sector at +8.5%, followed by the Technology sector at +6.2% and Financial sector at +5.4%. Nine of eleven sectors are forecast to show year-over-year revenue growth. The two sectors expected to show a decline in year-over-year revenue are the Energy sector at -7.5% and Materials sector at -5.8%.

The actual earnings results for companies and sectors relative to these expectations, along with their future outlooks, are key determinants of price performance.

This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.

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