Chronicle of January 2024
Is it Morning Again this Year?
U.S. Market Recap
S&P 500 went up by 1.59%, excluding dividends, with four sectors outperformed the market. Utilities (the 2023’s lagging sector) failed to defend its strong return in the first 7 days of the year and reversed its trend.
As for the so called “Magnificent Seven” stocks, AAPL 0.00%↑ was struggling to catch up and TSLA 0.00%↑ was experiencing one of its worst January performances. Meanwhile, NVDA 0.00%↑ had the best gain year-to-date, at least before META 0.00%↑ reported its earnings on the 1st of February.
Among S&P 500 members, there were Nvidia and Juniper Networks (JNPR 0.00%↑) that went up by more than 20%. JNPR’s 25% price movement in January was driven by the news that it will be acquired by Hewlett-Packard Enterprise ($HPE).
According to data from Yardeni, forward P/E ratio for the S&P 400 mid cap and S&P 600 small cap are 15.1 and 14.5, respectively, significantly below large cap stocks in S&P 500 at 20 times projected earnings of 2024. All small and mid cap stock indices moved negatively in January.
Earnings Season
Earnings season is underway, and almost half of the S&P 500 companies have announced their actual Q4 2023 results. According to FactSet, about 72% of companies reported a positive EPS surprise, and 65% reported a positive revenue surprise.
In aggregate, energy companies reported the largest earnings surprises (+14.2%) followed by consumer discretionary (+12.9%). Interestingly, energy companies also reported one of the largest negative revenue surprises (-2.6%), second only to utilities (-4.6%). Perhaps investors underestimate energy company’s cost discipline.
While Q4 2023 was a solid quarter overall, firms' outlook for Q1 2024 is rather concerning. Out of the 48 businesses that have released EPS guidance for Q1 2024, 31 have issued negative guidance, indicating that management's expectations are lower than consensus. Out of 268 firms that published EPS guidance for the fiscal year 2024, 47% issued negative guidance.
It was a positive start to the year; let's see if this bullish momentum holds throughout.