Market Outlook: Corporate Earnings to Dictate Stock Performance in 2024, According to JPMorgan

In the financial outlook for 2024, JPMorgan strategists have highlighted a shift in what will likely be the driving force behind stock market performance. It appears that the crux of investors' attention will pivot from yield rates to the ability of companies to deliver on earnings. JPMorgan has sounded a note of caution, suggesting that contrary to the general expectation of earnings growth, we might see it plateau instead.

Earnings at the Forefront

Among the potential hurdles for earnings, the strategists draw attention to the negative indicators such as the producer price indexes (PPIs) and the possibility that earnings per share (EPS) revisions might depress once more. This anticipatory stance underscores the view that stock valuations will become increasingly dependent on these earnings outcomes rather than the movement of yields.

Specifically, the bank's analysts suggest that equity markets in Europe seem fairly valued while those in the US show signs of being overstretched. They emphasize that the emphasis on earnings over yields will be a key theme for valuations going forward.

Risk Factors and Resilient Sectors

The risk factors, including rising costs of goods sold, behind-the-curve wage increments, and more expensive financing, could potentially affect sales mixes and volumes, signalling a tougher environment for earnings. Stocks are expected to encounter a turbulent phase in the first half of 2024 as they adjust to the earnings realignment and a possible economic slowdown.

For the latter part of the year, there is, however, a silver lining. Strategists at JPMorgan predict a more favorable period once the Federal Reserve progresses with interest rate cuts.

Sector Outlook and Investment Themes

In terms of sector performance, areas such as banking, automotive, consumer discretionary, and industrial sectors might experience downward pressure on earnings. In contrast, sectors such as utilities and energy/mining are seen as potentially more stable in the face of these headwinds.

The strategists also share thematic investment insights, advising caution towards stocks that have seen their margins inflate post-pandemic and stressing the importance of themes like increased defense spending and aerospace for 2024 and beyond.

Stocks, Earnings, Yields