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what is projected for 2024 and what risks lurk

Corporate earnings should improve at a stronger pace in 2024 as the inflation and Interest rates, analysts predict, but the concern about slowing economic growth weighs on the prospects.

The utilities of S&P500 would collectively increase 11.1% in 2024, after rising a modest 3.1% last year, according to estimates compiled by LSEG.

But earnings growth has to be enough to sustain the high stock valuations. He S&P500 index trades at 19.8 times 12-month earnings estimateswell above its long-term average of 15.6 times, according to data from LSEG Datastream.

Falling yields helped fuel strong late-year rallyespecially after the Federal Reserve in December opened the door to interest rate cuts in 2024, after a campaign of increases that began in 2022.

The Dow Jones Industrial Average reached its first record close since January 2022 in December, while the S&P 500 is one step away from its historic close, after climbing 24.2% last year.

“The market trading where it is at current levels requires earnings to show strong growth,” said Sameer Samana, senior global markets strategist at Wells Fargo Investment Institute. Among the concerns for 2024 are the lingering effect of higher interest rates on the economy and corporate profits, he added.

The US government confirmed in December that the Economic growth accelerated in the third quarter. He Gross Domestic Product expanded at an annualized rate of 4.9% last quarteraccording to the Bureau of Economic Analysis (BEA) of the Department of Commerce in its final estimate.

Profit projections could weaken further as companies begin to open their books on the fourth quarter and to provide guidance for the first quarter and the rest of 2024. The publication of the fourth quarter results will gain momentum in mid-January.

“We’re definitely seeing those (first-quarter) estimates weaken at a faster rate”said Nick Raich, CEO of The Earnings Scout. “Look at a name like FedEx, which is a good indicator of the global economy.”

FedEx shares fell 12.1% on December 20a day after the package delivery company reported earnings for the quarter ended Nov. 30 below analyst targets and cut its full-year revenue forecast.

Company profits: what the market projects for 2024

Estimated year-over-year earnings growth for S&P 500 companies for the first quarter of 2024 now stands at 7.4%, down from 9.6% on October 1, according to LSEG data. For the fourth quarter of 2023, S&P 500 earnings are expected to increase 5.2%, down from 11% on October 1.

Without a doubt, investors point to the cooling of inflation as a very positive factor for companies in 2024.

“The consumer appears to remain in good health, inflation is improving, employment remains strong, interest rates are falling and gasoline is falling,” said Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas.

Besides, “These companies have rationalized their businesses and the margins are decent,” he added.

Prices in the United States fell in November for the first time in more than three and a half yearsplacing the annual increase in inflation even further below 3%, according to a recent report from the Department of Commerce.

It is likely that the optimism for the growth of artificial intelligence continues to help companies with results and perspectives linked to AI technology.

“While the TECH+ (earnings per share) rally began in 2Q23, earnings in the rest of the market are expected to follow this trend in the coming year,” wrote Jonathan Golub, chief U.S. equity strategist and head of portfolio analysis at UBS Investment Research, in December.

The “Magnificent 7” group – Apple, Microsoft, Alphabet,, Nvidia, Meta Platforms, and Tesla – represented the 62.18% of the total return of the S&P 500 in 2023, according to S&P Dow Jones Indices senior index analyst Howard Silverblatt.

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