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Note from Tim Chang:
Key Investing Resource: Strategist Larry uses Interactive Brokers as his core brokerage. Feel free to check out IB. I currently park excess cash at Interactive Brokers. Check it out. It’s a great brokerage.
For Consumer goods to save on deals, I use Rakuten for finding the best pricing on all popular items. First-time users get $30 for free.
In our emails, we will provide the following coverage points:
Goldman Sachs suggests that the concerns over a weakening outlook for US corporate earnings might be overstated. They note that the recent 4% drop in fourth-quarter profit estimates since October for S&P 500 companies is part of a historical pattern, with expectations for 2024 showing a similar trend, dipping only 0.4% when excluding the healthcare sector, which has been a significant drag.
This pattern of declining quarterly earnings per share estimates by about 6% in the months before earnings season has been consistent since 2004.
Despite concerns about negative consensus earnings revisions, the strategists point out that over 80% of S&P 500 companies have outperformed estimates in the third-quarter earnings season, with earnings up by 4% from the previous year against expectations of no growth.
Looking ahead, Goldman Sachs predicts a 5% rise in S&P 500 earnings-per-share in 2024 to $237, slightly higher than the median forecast of $230, while Morgan Stanley anticipates a rise to $229.
Macro Chart In Focus
Analyst Team Note:
In the lead-up to the November FOMC meeting, the debate centered around the impact of financial tightening on Federal Reserve policy. Several FOMC members cited the increase in the 10-year Treasury yield as a reason for policy caution.
Chair Powell argued that this tightening was exogenous, not merely a reflection of expectations for a more restrictive Fed policy. However, this view was challenged, with arguments that long-end yields are primarily influenced by Fed policy expectations.
Recent market trends following the Fed meeting suggest that financial conditions are indeed closely tied to Fed policy. This creates a challenging situation for the Fed, as it navigates a complex, circular relationship between financial tightening and its policy responses;
Singles Day 2023 in China, a significant online shopping event, indicated a slowdown in consumer spending recovery amidst persistent economic challenges and fragile consumer confidence.
The total Gross Merchandise Volume (GMV) showed only a slight increase, marking a notable deceleration from the robust double-digit growth seen in previous shopping festivals such as 618 in 2023, and both Singles Day and 618 in 2022.
Traditional e-commerce experienced a minor year-over-year decline, contrasting with previous single-digit growths, although livestreaming platforms still saw teen-level growth, albeit slower than before.
The increase in the number of delivered packages suggests a rise in volume, but the overall GMV softness points towards lower average spending per purchase, reflecting a shift towards value-conscious shopping.
Chart That Caught Our Eye
Analyst Team Note:
Morningstar's annual retirement income report revised the safe annual withdrawal rate for retirees from 3.8% last year to 4% this year. This increase is attributed to higher bond yields and a relatively optimistic outlook on long-term inflation.
The report, which examined real-life returns and rates in a variety of market scenarios, suggests a 90% probability of funds lasting over 30 years at this withdrawal rate. The analysis is based on a conservative portfolio mix of 20-40% stocks, 10% cash, and the remainder in bonds.
Notably, the forecast for 30-year returns on U.S. investment-grade bonds has risen to 4.93%, with a projected long-term inflation rate of 2.42%.
However, the safe withdrawal rate decreases to 3.8% for portfolios with 70% in stocks, despite a higher median ending balance after 30 years.
The report highlights the impact of market conditions at the time of retirement and asset allocation on withdrawal rates, noting that while a 4% rate is a popular guideline, higher rates like 5% might be possible with adjustments such as reducing withdrawals in down markets or skipping inflation adjustments.
Sentiment Check
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