The Catalyst for the Stock Market: Earnings

The stock market is currently striving to reach its all-time high and requires a catalyst to push it forward. This catalyst could potentially be earnings.

Uneventful Week for the Market

The market experienced a rather uneventful week that didn’t significantly impact either the bulls or the bears. The S&P 500 managed to finish the week with a slight increase of 0.2%, while the Dow Jones Industrial Average remained relatively stagnant and the Nasdaq Composite saw a modest rise of 0.7%.

Impact of November Jobs Report

Friday’s release of the November jobs report was anticipated to have an impact on the market, but it turned out to be a nonevent. This was due to stronger-than-expected numbers being offset by revisions made to earlier months, as well as the influence of strikes and other factors. Nevertheless, the data does suggest that the thriving economy can successfully avoid a recession, possibly leading the Federal Reserve to consider cutting rates soon.

The Waiting Game

At present, the stock market finds itself in a state of waiting. With only a few weeks remaining in 2023, the S&P 500 has registered a 19% gain for the year, leaving it just 5% away from reaching its closing high of 4796, which was achieved in early January 2022. However, in order to surpass this hurdle, it requires something that can encourage sellers, who consistently emerge just below the 4600 mark, to retreat. The market eagerly awaits solid fourth-quarter earnings as its much-needed catalyst.

Fourth-Quarter Earnings Possibility: A Glance at the Market Outlook

Recent market estimates suggest that the upcoming fourth-quarter earnings may exceed current expectations. Despite a slightly decelerating economy, analysts project a 3.6% growth in aggregate S&P 500 earnings, reaching $54.49 per share. Sales are also anticipated to increase by 3.5% per share, amounting to $470.35. Although these figures have been revised downwards since August, they present an achievable benchmark for companies to surpass.

The performance of the future market is closely tied to the overall state of the economy. While concerns of a recession have resurfaced, it is important to note that a modest low-single-digit growth in real gross domestic product (GDP) would be sufficient to support the projected 5% sales growth for the S&P 500 in 2024. Additionally, if costs, such as materials and wages, experience moderate increases and companies continue with stock buybacks, profit margins are likely to expand, resulting in an estimated 12% growth in earnings, amounting to $244 per share next year.

One must consider the impact of market sentiment during these times. Although the stock market tends to overlook earnings-per-share (EPS) beats when economic conditions are deteriorating, positive results are often rewarded when growth remains steady. With this in mind, Spencer Hakimian from Tolou Capital Management states, “If we steer clear of a recession, the S&P 500 is poised to have a remarkable year in 2024.”

In conclusion, while some concerns arise from the current economic landscape, opportunities for surpassing expectations and achieving growth are evident. The performance of fourth-quarter earnings will likely play a significant role in shaping the market outlook for the coming year.

A New High is on the Horizon

Of course, stocks still need to get to fourth-quarter earnings season, which is a month away. In the meantime, the December Federal Open Market Committee meeting, November’s inflation report, and other events need to be navigated. That could add volatility along the way.

But make no mistake—a new high is likely coming. Wait for it.