ab10 January 2024Global Research and Evidence LabUS Equity Strategy4Q23 Earnings Preview: A Muddled PictureEarnings Growth: 4Q vs. 2024S&P 500 EPS is forecasted to grow 4.3% in 4Q; however, individual groups are expected to vary significantly, with TECH+ up 33.2%, and Energy & Materials down -24.7%. These differences are expected to wane in 2024, with S&P 500 growth at 10.3%, TECH+ at 18.0%, and the rest of the benchmark at 7.4%. Growth is expected to be positive in every sector for the year. Earnings Cycle: Recession & Recovery The S&P 500 entered a 3-quarter-long earnings recession in late 2022. Last quarter, 3Q23, marked the beginning of an earnings recovery, which is forecasted to reaccelerate throughout 2024. More accurately, the market is experiencing two independent, underlying trends:TECH+ experienced a 4-quarter-long earnings recession, which ended in 1Q23, with its strongest quarterly results likely this reporting season. The Rest of the Market , by contrast, is in the third—and likely final—quarter of an ongoing earnings recession.Given that the market is experiencing two out-of-sync earnings cycles, projecting a broad underlying trend for the quarter will be particularly difficult. Earnings Revisions: 4Q23 Poor, 2024 Strong Earnings estimates tend to follow a pattern: they start too high, adjust lower, only to be topped by actual results. Revisions for 4Q EPS have been 330 bps weaker than the historical trend, driven by negative adjustments in Health Care, Energy, and Materials. By contrast, full-year 2024 estimates have been adjusted higher by 240 bps, driven by Technology and Discretionary. Figure 1: Consensus EPS Estimates33.2-5.44.318.07.410.3TECH+S&P 500ex-TECH+S&P 500TECH+S&P 500ex-TECH+S&P 500%4Q232024Source: Standard & Poor's, Refinitiv, FactSet, 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 13. 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 10 January 2024ab 2US Equity StrategyUBS ResearchEPS Revisions - 4Q23Figure 2: Path of 4Q23 Bottom-Up S&P 500 Consensus EPS-3.8-0.2-7.1-8-7-6-5-4-3-2-101SepOctNovDecJanFebMarq Historical Trend4Q23 q%Source: Standard & Poor’s, Refinitiv, FactSet, UBSNote: Historical trend based on estimates from...
