Market Quote: U.S. Inflation Drifts Higher, U.S. Earning Growth Drifts Lower
Author: The editor's desk
February 14, 2024
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
Not So Fast
Market expectations for a continuation of the disinflationary trend and the potential for the U.S. Federal Reserve (Fed) to soon cut interest rates were dealt another blow earlier this week as the Consumer Price Inflation (CPI) report came in stronger than anticipated. While some still-elevated aspects of the report such as housing-related rent metrics are likely to come down with a lag, the so-called “super core” inflation figure (which excludes food, energy and housing-related items) actually re-accelerated and is running at an uncomfortably high pace versus the Fed’s 2% objective.
Coupled with solid employment and retail sales data, this has forced market participants to temper their expectations of the timing and magnitude of rate cuts. Bond yields have risen to reflect these revised expectations, which also precipitated an equity sell-off yesterday. Incoming data will remain a key focus for both central bankers as they shape monetary policy and investors as they consider prospects for bonds and stocks going forward.
That’s a Wrap
U.S. earnings season is nearly 75% complete, with the majority of technology, financial and industrial companies having reported results. On balance, the fourth quarter of 2023 has been another strong quarter with almost 80% of companies beating consensus earnings estimates and 65% beating revenue expectations, both in line with prior quarter statistics. Overall earnings per share for the S&P 500 Index looks likely to come in at US$224 for the year, up slightly over the prior year and higher than the consensus estimates at the beginning of 2023.
For 2024, consensus numbers are now expecting earnings growth of 8.5% for the year, which has drifted lower over the past few weeks. Earnings revisions are down for nine of the 11 S&P 500 sectors since December 31, 2023—a trend that is in line with historical norms and likely to continue over the coming weeks.
The market’s focus for first quarter earnings is likely to home in on overall annual guidance, as the outlook from many companies was heavily tilted towards the second half of 2024. The economic backdrop in the U.S. continues to be resilient despite the macro noise around the world.
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Commentary and data sourced from Bloomberg, Reuters and other news sources unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of February 14, 2024 and are not intended to be comprehensive investment advice applicable to the circumstances of the individual. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.
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