US stock futures dip as Nvidia earnings spark little cheer
Recent weeks have seen increased volatility in equity markets, primarily influenced by evolving expectations regarding Federal Reserve policy rates and geopolitical factors following the Israel-Hamas war.
The upcoming focus is expected to shift towards corporate fundamentals as the third-quarter earnings season for the S&P 500 commences.
UBS analysts believe that the profit recession has concluded, and the U.S. economy is on track for a relatively gentle slowdown. This positive outlook is driven by robust consumer activity, moderating inflation, and solid growth.
After experiencing three consecutive quarters of year-over-year declines, it is anticipated that the third quarter of 2023 will mark a return to growth for S&P 500 earnings per share (EPS), with profits expected to increase by 3-4%. This outlook contrasts with the consensus forecast, which suggests flat EPS growth for the third quarter.
The investment banking giant forecasts that S&P 500 EPS will remain steady at $220 for the full year 2023 and then surge by 9% year-over-year, reaching $240 in 2024.
However, the anticipated rise in interest rates and the potential for slower economic growth in the coming months have led to adjusted expectations for the S&P 500. As a result, the new price targets are set at 4,500 for June 2024 and 4,700 for December 2024.
“Even with higher rates, we expect consumer balance sheets to remain healthy, since 90% of consumer debt is with lower fixed interest rates. But there are risks to consumer spending, including the resumption of student loan repayments and higher oil prices. Furthermore, labor renegotiations, a potential government shutdown, and geopolitical conflicts add to economic uncertainty,” UBS analysts wrote in a client note.
The bank was previously expecting the S&P 500 to hit 4,700 by June 2024.
“We maintain a least preferred stance on US equities relative to other regions, yet we think the risk-reward is becoming more attractive on a 12-month time horizon, since valuations have pulled back. We hold a neutral view globally on stocks and recommend investors focus on areas that have lagged this year's rally, such as emerging market equities.”