We caught up with Andrew Hunt again at the end of last week and, as the US reporting season and Q4 economic data starts to hit the wires we were keen to firm up on the 2024 outlook that we discussed with him before pushing it out to our client portals. He   believes we are in an unusually complex economic situation currently and that we need to be on our toes in the next few weeks. The end of 2023 showed strong economic growth globally, particularly in the US, China, and trade activity. This has started to again create some inflationary pressures. However, in the last few weeks, there has been an unexpected tightening of fiscal policy in the US and China, with China now possibly responding with stimulus measures.

Liquidity supported markets over Christmas but may start tightening from March. Combined with lingering inflation this could create some "stagflation" concerns. Markets could become vulnerable, before moving to price in expected rate cuts later in 2024. So, overall, markets are still acting on the assumption of continued strong growth in early 2024. But Andrew expects data over the next month or two to reveal slowing growth, possibly leading to earnings disappointments and market downdrafts.

With all this in mind we will be maintaining a cautious/neutral stance for now, while keeping a close watch on incoming fiscal, economic and liquidity data.

Around a quarter of US companies have reported so far and the results, as far as one can judge up to now, have been highly nuanced. 69% have reported positive EPS surprises while companies overall are reporting earnings 5.3% below prior estimates. Overall, year-on-year earnings are down -1.4% in nominal terms, marking the 4th decline in 5 quarters but some sectors are up strongly like Communication Services (40.4%), Utilities (30.0%), and Consumer Discretionary (23.2%). Meanwhile others are down by just as much such as Energy (-31.4%), Materials (-21.6%), Health Care (-21.5%), and Financials (-19.0%). Obviously the so-called Magnificent 7 is behind much of this discrepancy and arguably this is the week we get to find out with this unbalanced train can keep going during the coming week, 106 S&P 500 companies report Q4 results, including Amazon, Apple, Meta Platforms, Microsoft, and Alphabet.  While AI optimism has helped all of these stocks they are, by revenue and current profits, still highly cyclical consumer facing companies and this week will be an important bellwether on the strength of the US economy and its consumers.

With all that in mind we will be publishing some annual and longer outlook pieces this week through the client Portal, but with the caveat that they might be subject to some changes even in the next few weeks.  Like the tech industry and fed alike often say, we feel things are a bit data dependent at the moment.