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4Q23 Earnings Preview (Weekly Insights 01/08/2024) Thumbnail

4Q23 Earnings Preview (Weekly Insights 01/08/2024)


Global Equities Struggle to Maintain Momentum to Start 2024

Equities: The MSCI AC World Index was lower for the first time in 10 weeks as Treasury yields climbed amid central bank uncertainty. All major U.S. averages snapped a nine-week winning streak amid the stronger than expected employment report. Mega-cap technology stocks were under the most pressure, causing the Nasdaq to post its worst weekly loss since September. In addition, small and midcap stocks fell the most.

Fixed Income: The Bloomberg Barclays Aggregate Index was lower for the first time in six weeks as Treasury yields climbed on a better than expected jobs report and a lesser chance of rate cuts in 2024. The 10YR Treasury breached the key 4.0% level. Floating rate instruments were the only area of fixed income higher for the week.

Commodities/FX: The Bloomberg Commodity Index was relatively flat last week. Crude oil prices posted their largest weekly gain since October amid tensions in the middle east and Houthi militant attacks in the Red Sea causing uncertainty about global supply. The U.S. Dollar was higher by the most since July given the stronger than expected employment report.  


Key Takeaways:

  • Major banks kick off 4Q23 earnings season later this week.
  • S&P 500 expected to report earnings growth for second consecutive quarter.
  • Communication services to be largest contributor.
  • Discretionary completed supported by Amazon earnings.
  • Looking for downgrades to 2024 earnings.

S&P 500 earnings season (for 4Q23) gets under way this week amid growing uncertainties about the Fed’s path forward and the possibility of an economic slowdown and/or recession. Investors will get their first look at bank earnings with JPMorgan Chase, Wells Fargo, and Citigroup all scheduled to report before the market opens on Friday January 12th. According to FactSet, analysts are expecting S&P 500 earnings to grow 1.3% YoY, which would mark the second straight quarter of earnings growth. However, at the end of 3Q23, analysts were expecting earnings to grow 8.0%, signifying a ~6.8% cut to expectations. While it is typical for analysts to reduce estimates during a quarter, this cut has been the largest since 2Q22.

The percentage of companies issuing negative guidance for 4Q (65%) is above the five and 10-year average. S&P 500 revenues are expected to grow 3% on a year-over-year basis, the 12th  straight quarter of revenue growth. However, this is lower compared to the end of 3Q23 (3.9% YoY). In this weekly, we provide some insight to what investors can expect from earnings season.

  • Communication services to lead again: The communication services sector is expected to report the highest year-over-year earnings growth of all 11 S&P 500 sectors (+42%). The increase is being driven by three industries expected to report earnings growth of more than 50% (i.e. entertainment, interactive media & services, and wireless telecom). Meta is expected to be the largest contributor to earnings growth. If Meta were excluded, the earnings growth rate would fall to 25% from 42% (YoY).
  • Energy a drag yet again: The energy sector is expected to report the largest year-over-year earnings decrease of all eleven S&P 500 sectors (-29%). The decrease is being driven by lower year-over-year crude oil prices.   
  • Amazon to have outsized impact on consumer discretionary: The discretionary sector is expected to report the third-highest year-over-year earnings growth of all 11 sectors (+23%) driven entirely by Amazon. If the company were excluded from the sector, the year-over-year earnings growth would fall to -3.2%.
  • The financial sector continues to attract attention: Amid a ~70bps drop in the 10YR Treasury yield and increasing credit card delinquencies, the financial sector remains an area of focus. The sector is expected to report the fourth-highest year-over-year earnings decline of all 11 sectors (-3.1%) but is expected to report the highest year-over-year revenue growth (+7.0%). Analysts at FactSet expect investment banking revenues to remain relatively weak but note M&A activity could be “interesting” given lower financing costs. 


We expect 4Q23 earnings to post positive growth as the economy remained supported. However, our concern is that earnings for 2024 and 2025 remain too optimistic. Analysts expect earnings growth between 10-15% for both calendar years. This does not reflect our base case scenario that the economic environment will be challenged. Inflation, while slowing, is still a headwind for companies. Lastly, we believe analysts are too optimistic about the pace of rate cuts in 2024. All of these factors could put downward pressure on earnings estimates.

© 2024 Authored by Megan Horneman, Chief Investment Officer, Verdence Capital Advisors, LLC.   Reproduction without permission is not permitted. The indexes presented are unmanaged portfolios of specified securities and do not reflect any initial or ongoing expenses nor can it be invested in directly. An investment’s portfolio may differ significantly from the securities in the index.
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