Citi Estimates There’s a Strong Chance That First-Quarter Earnings Per Share Will Be Higher Than Expected
Citi’s team of strategists revised their complex statistical model that combines key economic factors with earnings per share (EPS) growth for the S&P 500 index.
“They concluded that there is a very strong possibility that earnings per share will beat expectations in the first quarter, but they anticipate that the companies will not significantly update their future earnings forecasts.”
“Improving economic indicators and higher forecasts suggest there is a 50% chance that the S&P 500 will meet or exceed the $245 gain we project for the full year. To give an idea, that probability was about 30% in November,” he said.
The financial institution expects the pattern of first-quarter earnings reports to be similar to the last quarter, with a high frequency of companies reporting earnings above expectations but little change in future earnings estimates.
The statistical model, which also includes forecasts for future economic conditions, shows there is a 76% chance that actual first-quarter EPS for the S&P 500 will exceed analysts’ consensus estimates.
However, the likelihood of earnings beating expectations for the rest of 2024 has fallen to 49%, suggesting companies may be cautious about boosting their financial forecasts.
In summary, Citi is of the view that strong economic fundamentals will support the market even if the US central bank does not cut interest rates anytime soon.
Traditionally, the S&P 500 has seen significant earnings growth in the upper single-digit percentage range during periods when the central bank leaves interest rates unchanged.
“Our estimated earnings growth of approximately 10% is above this historical range and suggests that current prices of the index are not dependent on central bank policy changes. However, it may be more difficult to achieve a significant peak in the index without some reduction in interest rates by the central bank,” he commented.