ab2 January 2024Global Research and Evidence LabUS Equity StrategyRoadmap - January 2024TECH+ and Growth Stocks Lead in Stellar Return YearThe S&P 500 returned 26.3% in 2023, 16.2% since October 27, 11.7% in 4Q. Growth (42.7%) topped Value (11.5%) and Small Caps (16.9%) for the year. Technology (57.8%), and Comm Svcs (55.8%) led, while Utilities (-7.1%), Energy (-1.3%), and Staples (0.5%) lagged. 2-Year Returns More ModestWhile 2023 returns were extremely robust, stocks delivered a 2 year return of just 3.4% (1.7% annualized). Over this period, EPS improved 6% while valuations declined 17% (2.9x multiple points). The largest 7 companies (AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA) returned 75.6%, versus -39.9% in 2022.Economic Backdrop Surprisingly Strong in 2023At the start of the year, consensus GDP forecasts for 2023 stood at 0.3%, versus 2.4% today. The most recent unemployment reading of 3.7% is only 10 bps above year-ago levels. While credit availability remains tight, it has shown signs of improvement. EPS Growth Expected to Reaccelerate in 2024Consensus expectations are for 10.2% and 12.5% EPS growth in 2024-25. Following 3 quarters of negative growth, EPS expanded 5.8% in 3Q23 on a resurgence in TECH+ EPS (32.3%). Earnings topped estimates by 7.2% over the past 3 quarters.Rates Lower on Falling Inflation and Fed PivotSince February 2022, Core PCE—the Fed’s preferred inflation measure—has declined from 5.6% to 3.2%. UBS economists expect this measure to fall below 2% by year-end 2024. On December 13, Fed Chair Powell signaled a pivot in monetary policy. As a result, expectations have shifted from 3 rate cuts to 6 in 2024. While 10-year Treasury yields remain virtually unchanged from a year ago, spreads have declined precipitously.Fed Funds Futures - Current vs. 10/31/233.74.73.504.004.505.005.50Dec 23Mar 24Jun 24Sep 24Dec 24%Current pq 10/31/23Source: Federal Reserve, Bloomberg, UBSThis 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 64. 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 StrategyAmericasJonathan GolubStrategist jonathan.golub@ubs.com +1-212-713 8673Patrick PalfreyStrategist patrick.palfrey@ubs.com +1-212-713-2000Will JacksonAssociate Strategist will.jackson@ubs.com +1-212-713-2000Nicholas SamoyednyAssociate Strategist nicholas.samoyedny@ubs.com +1-212-713-2000 US Equity Strategy 2 January 2024ab 3Market LeadershipTotal Return: 10/27/23 to Present24.317.916.215.715.311.79.39.1Russell2000LargeGrowthS&P500LargeValueEAFE(USD)EM(USD)EAFE(Local)EM(Local)%So...
