[ad_1]
Investors in the U.S. stock market should “maintain a defensive posture,” as company earnings risk falling under “near-term pressure,” according to Wells Fargo Investment Institute.
“Our view is that earnings for all equity classes peaked and will move lower as the economy weakens and revenue growth stalls,” Wells Fargo Investment Institute said in a note Tuesday. “In the near term, we expect pressure on earnings as well as prices with bouts of weakness and range trading.”
Wells Fargo looked at the fall in the S&P 500’s earnings per share, or EPS, on a trailing 12-month basis during past recessions, cautioning investors that company earnings are “unlikely to escape a slowdown unscathed.” The median peak-to-trough drop was 21.4%.
WELLS FARGO INVESTMENT INSTITUTE NOTE DATED JAN. 23, 2024
“We expect a slowing economy and tighter financial and credit conditions to pose headwinds going forward,” said Wells Fargo.
The S&P 500 on Monday saw its second record close of 2024, after on Jan. 19 notching an-all-time closing high for the first time in about two years, according to Dow Jones Market Data.
On Tuesday afternoon, U.S. stocks were trading mostly higher, with the S&P 500
SPX
gaining 0.2%. As for other major equities benchmarks, the technology-heavy Nasdaq Composite
COMP
was up 0.2% on Tuesday afternoon, while the Dow Jones Industrial Average
DJIA
was trading 0.3% lower.
Read: Beware of ‘pricey’ U.S. stocks as inflation may ‘roller-coaster back up,’ warns BlackRock
Companies have been rolling out their earnings reports for the fourth quarter, with Verizon Communications Inc.
VZ,
General Electric Co.
GE,
and Procter & Gamble Co.
PG,
among those that released their quarterly results on Tuesday. Investors are expecting to see earnings results from Netflix Inc.
NFLX,
after the closing bell on Tuesday.
“Much of the recent strength” in U.S. stocks is tied to the market’s expectations for “a combination of aggressive rate cuts, a still strong economy, low inflation, and easy financial and credit conditions,” said Wells Fargo. “Those factors don’t happen together all that often.”
Investors on Thursday will see a preliminary reading on U.S. gross domestic product for the fourth quarter, followed by a fresh report Friday on inflation from the Federal Reserve’s preferred inflation gauge — core data from the personal-consumption-expenditures price index.
Meanwhile, Wells Fargo is “favorable” on U.S. large-cap stocks, “neutral” on U.S. midcap equities, and “most unfavorable” on U.S. small-cap stocks, according to its note.
“But once the economic slowdown appears to be fully priced into market valuations, we likely will look for an opportunity to position for an emerging early cycle recovery,” the firm said. “More cyclically oriented equities should benefit the most when the economy gains its footing and corporate earnings begin to grow again.”
[ad_2]
Source link
