Welcome to RBC’s Markets in Motion podcast, recorded October 28th, 2024. I’m Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets. Please listen to the end of this podcast for important disclaimers.
Three big things you need to know: First, the early S&P 500 stats are now pointing to a mildly disappointing 3Q24 reporting season so far. Second, a mixed backdrop, the need to wait a bit longer for interest rate relief, and the need to get through the election were key themes in last week’s earnings calls. Third, the US election has been in focus in our recent meetings with US-based long-only investors, who we encourage to be ready for all outcomes.
If you’d like to hear more, here’s another 5 minutes. Now, let’s jump into the details.
Starting With Takeaway #1: The Early S&P 500 Stats Are Now Pointing to a Mildly Disappointing 3Q24 Reporting Season So Far
When we crunched the data late last week, here’s what jumps out to us on the stats so far:
- The percent of companies beating consensus forecasts on EPS and revenue within the S&P 500 are now both tracking a little below 2Q24 – coming in at 76% on earnings (down from 80%) and 58% on revenues (down from 61%).
- Russell 1000 companies beating consensus EPS forecasts are underperforming the broader market in terms of immediate price reaction.
- The rate of upward EPS estimate revisions for the S&P 500 has averaged just 42% over the past four weeks, pointing to mostly downward revisions.
- In dollar terms, the bottom-up consensus S&P 500 EPS growth has moved down to $242 for 2024 from $245 a few weeks ago, and 2025’s bottom-up consensus forecast has come down meaningfully as well. Energy accounts for much of the softening, but f other sectors have also contributed.
Moving on to Takeaway #2: A Mixed Backdrop, the Need to Wait a Bit Longer for Interest Rate Relief, and the Need to Get Through the Election Were Key Themes in Last Week’s Earnings Calls
As always, our team has been reading through earnings call transcripts.
- Last week, discussions of the outlook, macro backdrop, and business conditions remained mixed. Companies with a more positive tone highlighted healthy end markets, comfort in current trends, low unemployment, moderating inflation, stability in short cycle businesses, a slowing but resilient economy, low recession odds, and robust deal pipelines. Companies with a more negative tone highlighted mixed end markets and macro indicators, choppy or sluggish demand, consumer reluctance, economic softness, and a worse third quarter than anticipated.
- Geography, especially China, became more in focus as sector representation broadened out. Companies emphasized ongoing challenges, uncertainty, and weakness, along with optimism about the coming impact of stimulus, though several noted it was early days.
- The Fed and interest rates generally remained very much in focus. Some companies were optimistic around the positive impacts of rate decreases, while others dwelled on the negative impacts of the high levels of rates that remained in place. Several noted real relief here will take more time.
- Unsurprisingly, the US election came up quite a bit, and there were numerous references to the uncertainty that the event has created and its impact on business activity. Several companies noted the need to simply get to the other side. We took note of one company that emphasized they’d be able to navigate regardless of outcome. We also found it particularly interesting when one homebuilder highlighted how their active adult buyers seemed most sidelined by the event.
Wrapping up with Takeaway #3: What Else Is on Our Minds
- On sentiment, net bullishness on the AAII investor survey fell to 7.8% last week, bringing the four-week average down to 18.6%. For several weeks earlier this month, net bulls were more than one standard deviation above the long-term average on the four-week average, a level associated with the start of 5-10% pullbacks in the S&P 500 in recent years. This is a positive development for US equities to be sure, but it’s possible we’ve not yet fully experienced the full effects of sentiment having briefly gotten too optimistic. We remain on guard for another short-term pullback.
- Finally, the election has been in focus in our meetings with US based equity investors in recent weeks, a contrast with much of 2024 when most of these investors found conversations on it extremely uncomfortable. Our sense is that these investors aren’t sure who will win and aren’t sure what to do when they know who will, and simply aren’t really doing much right now. Concerns about a contested election or lengthy resolution are also top of mind and these investors seems angsty and stuck.
- One question coming up has been whether financial markets are already baking in a Trump victory. While we wouldn’t quite go that far, we do think some repricing for this outcome has started. In addition to a market that seems a little out of sync with reporting season, trading in the S&P 500, small caps, the Dollar, and 10 year yields, have all becoming aligned with Trump’s odds in the betting markets, polling average, or both. If Trump doesn’t win, these trades seem likely to reverse in the very short term. Longer term, however, we continue to believe that the thing that may matter most for US equities is simply getting past the event so that companies, and investors, know what they are dealing with.
- One last thought: We know that the election is just a week away, betting markets have expressed a view, and some corners of financial markets have started to adjust. But we are also mindful of a few other things. The polls are tight in the aggregate, but reflect deep divisions on many issues and in certain demographics. Turnout will be key and tough to predict. And conditions will continue to evolve in the week ahead. We’ve been telling investors to go into next Tuesday prepared for all outcomes, and to wait and see how things unfold. That remains our view today.
That’s all for now. Thanks for listening. And be sure to reach out to your representative with any questions.