Dow Jones, Nasdaq, S&P 500 weekly preview: Q4 earnings season

S&P 500 lost 1.5% in the first trading week of 2024, ending a nine-week streak. Analysts expect rocky start to 2024.

The S&P 500 (SPX) experienced a 1.5% loss in the first trading week of 2024, marking the end of a streak of nine consecutive weekly gains since late October. The rally came to a close near the 4800 mark, with the bulls failing to post a new record high. However, the SPX is just 2.1% away from its previous all-time high recorded on Jan. 3, 2022.

The Dow Jones Industrial Average (DJI) also saw a 0.6% loss, but it remains close to the record highs set in the final week of December. Meanwhile, the Nasdaq Composite Index (IXIC) dropped as much as 3.3%, marking the biggest weekly fall since September.

The start of the year has been rocky for equity markets, as investors have chosen to take profit following a massive rally in the last two months of 2023, and ahead of the Q4 earnings season that begins later this week.

Analysts at JPMorgan have noted that equity markets are now showing overbought conditions, with sentiment moving into complacent territory. Investors will be focused on the Consumer Price Index (CPI) print for December, which is due out on Thursday, as well as the Producer Price Index (PPI) data expected to be released on Friday.

The Q4 earnings season is set to start, with the S&P 500 anticipated to experience a year-over-year earnings growth rate of 1.3% for the fourth quarter of 2023. This estimate reflects a significant downward revision from the estimated growth rate on September 30, which was notably higher at 8%.

The forward 12-month price-to-earnings (P/E) ratio for the S&P 500 currently stands at 19.2, indicating a relatively higher valuation compared to historical norms. Major companies reporting this week include Albertsons, KB Home, Taiwan Semi, Infosys, JPMorgan, UnitedHealth, Bank of America, Wells Fargo, Citigroup, BlackRock, and Delta Air Lines.

Analysts at Goldman Sachs expect S&P 500 firms in aggregate to beat analyst forecasts, despite lower oil prices. They see potential upside to their EPS estimate from stronger US economic growth, lower interest rates, and a weaker USD.

Analysts at Oppenheimer expect the market to remain data-dependent until Q4 earnings season begins, while analysts at JPMorgan note that recession probabilities are currently near the lows of the range. Analysts at RBC remain constructive on the S&P 500 in the year ahead, revising up their YE 2024 S&P 500 price target to 5,150 from 5,000. Meanwhile, analysts at Morgan Stanley anticipate muted real GDP growth, falling inflation, and more accommodative monetary policy from the Fed.

Analysts at Evercore ISI forecast a Full Circle year as 2024 EPS will show little change vs. 2023 or 2022, emphasizing the critical nature of stockpicking as correlations hover near PrePandemic troughs and early reports have had sizeable moves.