Citi strategists have up to date their multi-variable regression evaluation, which integrates key macroeconomic indicators with earnings progress.
Their findings counsel “a very high likelihood of a positive Q1 EPS surprise, but relatively limited guidance follow-through,” they mentioned in a current observe.
“Better-than-expected macro data and rising projections imply there is a 50% chance of the S&P 500 reaching or exceeding our $245 full-year earnings estimate. For context, that probability was circa 30% in November,” analysts wrote.
The Wall Street big anticipates that the Q1 reporting season will mirror the earlier quarter, characterised by a robust variety of earnings beats however restricted follow-through on steerage.
Their regression evaluation, supplemented by forward-looking macroeconomic estimates, predicts a 76% probability that Q1 S&P 500 EPS actuals will surpass the bottom-up consensus.
However, the likelihood of earnings upside for the remainder of 2024 dropped to 49%, hinting that companies could also be hesitant to lift their outlooks.
Overall, Citi believes that strong fundamentals are prone to assist the markets, even when the Federal Reserve doesn’t minimize charges within the close to time period.
Historically, the S&P 500 has achieved excessive single-digit earnings progress in periods when the Fed has maintained regular rates of interest.
“Our EPS growth estimate circa 10% exceeds that level, implying current index levels are not Fed dependent. However, a blowoff top may be more difficult without some degree of Fed cuts,” mentioned analysts.