Tom Lee, head of research at Fundstrat, provides a positive analysis of U.S. corporate earnings at the halfway point of the fourth-quarter results reporting season, highlighting that earnings per share estimates are understated due to financials' drop caused by a $23 billion fee. He also notes that companies beating estimates are seeing one-day stock-market gains, the percentage of companies reporting double-digit earnings per share growth has increased, and draws inspiration from the Chinese stock market showing signs of bottoming. Additionally, U.S. stock index futures rose, and the yield on the 10-year Treasury was 4.12%.
As 2024 commences, there is a mounting concern among Wall Street investors that the stock market may be significantly overvalued. This apprehension stems from the recent rapid growth in stock prices, which some analysts believe has outpaced the underlying economic indicators and corporate earnings. The fear is that this disconnect could lead to a market correction if the optimistic projections do not materialize.
As 2024 approaches, investors are anticipating a shift from rising to potentially falling interest rates by major Western central banks, which has led to a market rally. However, the transition to a new economic order with more expensive money could bring challenges, including the need for debt restructuring by companies and countries, and adjustments for consumers used to low borrowing costs. The resilience of the U.S. economy has been a positive surprise, but with pandemic-era savings dwindling and geopolitical tensions rising, the true impact of higher interest rates will likely test investor convictions and require significant adjustments across various sectors.
The weekly market outlook highlights key economic data releases from January 2-5, including manufacturing and services PMI reports from China, the US, and the Eurozone, as well as labor market statistics such as the US NFP, job openings, and jobless claims. The US ISM Manufacturing PMI is expected to show continued contraction, while job openings are anticipated to be slightly higher than previous figures. The US ADP report may provide insights into the labor market, despite its limited predictive power for the NFP. Initial jobless claims are expected to remain low, indicating few layoffs, but continuing claims suggest a tougher job market for those already laid off. The Eurozone CPI is expected to show a slight increase, with the ECB pushing back against market expectations for rate cuts. Canadian job data is projected to show a small increase in jobs and a slight rise in unemployment. The US NFP is expected to show a decrease in jobs added and a slight uptick in unemployment, with average hourly earnings growth cooling. The US ISM Services PMI is expected to remain resilient, reflecting the sector's lower sensitivity to rate hikes.
