ab2 January 2024Global Research and Evidence LabUS Equity StrategyU.S. Return Decomposition - January 2024Returns have swung meaningfully over the past 2 years, with Growth and Value rotating in and out of favor. In 2022, for example, the S&P 500 returned -18.1% (including dividends), with Growth down -29.1%. By contrast, in 2023, the market returned +26.3%, +42.7% for Growth. Taken together, over the past 2 years, the S&P 500 returned a paltry +3.4% (+1.7% annualized).The source of returns has also been quite disparate between styles, sector and market cap, with roughly half of Large Cap Growth's 2023 returns attributable to earnings, but virtually none for Value and Small Caps. The largest seven companies returned +76.2% in 2023, a marked reversal from their 2022 performance of -39.7%. While virtually all of their 2022 underperformance came from multiple contraction, the group's 2023 outperformance was largely split between earnings growth and increasing valuations.Figure 1: Change in EPS and P/E4Q23EPS*+P/E=Price Return+ Dividends = Total ReturnS&P 5001.99.211.20.411.7Russell 1000 Value-0.18.98.80.69.5Russell 1000 Growth4.88.713.90.214.2Russell 2000-0.714.413.60.414.0One YearEPS*+P/E=Price Return+ Dividends = Total ReturnS&P 5007.415.724.21.726.3Russell 1000 Value1.07.78.82.411.5Russell 1000 Growth18.319.541.40.942.7Russell 20001.813.115.11.616.9Two Year (Cumulative)EPS*+P/E=Price Return+ Dividends = Total ReturnS&P 50011.0-9.90.13.33.4Russell 1000 Value5.3-6.6-1.64.73.1Russell 1000 Growth21.2-18.1-0.81.91.1Russell 20007.2-15.8-9.73.0-7.0Source: Standard & Poor’s, FactSet, UBSNote: *Change in forward estimates. All data and prices as of December 29, 2023 unless otherwise noted.This report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 17. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Equity StrategyAmericasPatrick PalfreyStrategist patrick.palfrey@ubs.com +1-212-713-2000Jonathan GolubStrategist jonathan.golub@ubs.com +1-212-713 8673Nicholas SamoyednyAssociate Strategist nicholas.samoyedny@ubs.com +1-212-713-2000Will JacksonAssociate Strategist will.jackson@ubs.com +1-212-713-2000 US Equity Strategy 2 January 2024ab 2US Equity StrategyUBS ResearchS&P 500Figure 2: S&P 500 Return Decomposition – 4Q23 Revenue*Margin*Earnings*BuybacksEPS*P/EPrice ReturnDividendsTotal ReturnS&P 5001.10.61.60.21.99.211.20.411.7REITs2.4-0.91.5-0.70.716.817.71.018.8Technology2.93.26.10.16.310.016.90.217.2Financials0.80.41.20.31.511.713.40.514.0Industrials0.6-0.60.00.20.112.312.50.513.1Discretionary0.62.43.00.33.38.612.20.212.4Comm Svcs1.51.83.30.63.96.610.70.211.0Materials-...
