2024 Survey: Earnings Growth Expectations May Be Too High - Disappointment Ahead?
During the last week of December, I polled my Twitter followers for their outlook on the markets and the economy for 2024. The results were quite interesting, but before we look forward, we must look back at 2023 for context.
Last year was not what the majority of mainstream economists and analysts predicted.
Going into last year, expectations for a recession and negative market returns were high. The table below shows some important events and market reactions during the previous year for the S&P 500. Each one of those events was expected to disrupt the market.
Yet, despite higher Fed funds rates, rising interest rates, bank failures, and fiscal concerns, the market closely followed the seasonal pattern of a pre-election year.
The correction during the summer certainly had the bears coming out of hibernation, but the bulls were entirely in charge by year-end. The chart is the combined net bullish sentiment index (professional and retail) compared to the S&P 500 index.
So, with the understanding that 2023 defied all previous expectations, what do investors enter 2024 think regarding the market and the economy?
With the S&P 500 ending the year 24% higher than where it started, 42% believe 2024 will end lower than the year’s close of 4769.
However, if we split the 4600-5000 band, roughly 50% think the year will be lower. Interestingly, 24% expect returns above the 2024 market consensus of 5200.
Of course, for the market to generate those returns, the economy must avoid a recession. When asked that question, 45% of those polled believe there is more than a 50% chance of a recession, with 13.6% at a 100% conviction.
Here is the problem with that view. In an economic downturn, the market must reprice earnings for slower
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