If you’d like to hear more, here’s another five minutes.
Let’s jump into the details.
Takeaway #1: The earnings advantage of the Top 7 stocks in the S&P 500 is expected to shrink.
• One of the most common questions we’ve gotten over the past few weeks is: how does the EPS growth outlook for the top 7 names in the S&P 500 compare to the rest of the index? We dug into consensus forecasts to find out the answer.
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• Interestingly, however, the gap in EPS growth between the top 7 names and the rest of the index is expected to shrink in coming years, suggesting that an important tailwind for the mega cap Growth trade is weakening a little.
Moving on to Takeaway #2: Confidence has persisted in early 4Q23 earnings calls
• As has become our custom, our team has been reading through many of the transcripts of S&P 500 earnings calls to gain insight into what companies are saying that has relevance to the macro backdrop for the US equity market.
• For the most part, companies have tried to strike an optimistic tone even when they are delivering news that isn’t so good. Most of the companies that have reported (which are skewed heavily to Financials) are emphasizing consumer strength and resilience once again. At the same time, macro risks, geopolitics, and the theme of normalization have been in focus.
• Coming into 4Q23 reporting season, the tone on earnings calls (confidence references less uncertainty references) was about as constructive as we’ve seen in the post COVID era, raising the bar for the stock market in coming weeks.
Wrapping up with Takeaway #3: More evidence of resilient consumers
and Russell:
• This indicator continued to recover from the recessionary lows achieved in the summer of 2022 and came in well ahead of consensus expectations last week.
• One thing that intrigued us in the details of this report was that consumer expectations regarding both interest rates and the stock market improved significantly.
• We also found it interesting in the Michigan survey that consumer opinions about government policy have continued to slowly inch up off extreme lows…
• …and that sentiment among Democrats and Independents picked up, while essentially moving sideways for Republicans. We have not seen an improvement in Biden’s approval numbers, however, and Trump has slightly widened his lead over Biden in the polls.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
