Tech Dominance Essential for S&P 500's Growth in 2024
The S&P 500 (SPX) appears heavily reliant on technology stocks to achieve growth during the ongoing earnings season, according to insights shared by Barclays strategists. As we delve into Q4 2024, the patterns observed in January often set the stage for large-cap U.S. equities for the remainder of the year. Barclays analyzes that a downturn in January typically signals a median return of +2.5% over the subsequent eleven months, while a rise exceeding 1.5% is frequently followed by a median return of +11.4% for the year ahead.
Current Market Sentiment
Barclays highlights that current estimates indicate the SPX's continuing dependence on technology stocks for driving growth this earning season. The team, led by strategist Venu Krishna, points out that downward revisions in sectors outside of technology show a discrepancy of 300 basis points (bps) above average. This trend reflects a bearish sentiment as the earnings reporting season nears, which could influence investor strategies and risk assessments.
Interestingly, consensus estimates suggest that many sectors not linked to technology are poised to report Q4 earnings per share (EPS) growth that may fall below long-term medians. This potentially sets a low benchmark for expected quarterly results and may entice investors looking for value opportunities.
EPS Growth Predictions
Despite the cautious outlook, Barclays projects that while the year-over-year EPS growth for the S&P 500, when excluding major technology companies, is expected to notably improve in the initial quarter of 2025, the predictions for Q4 2024 failed to meet similar optimistic expectations. This shortfall results primarily from negative operating leverage and ensuing downward revisions, which the market is monitoring closely.
The anticipated consensus EPS forecast for fiscal year 2025 has seen a slight decline of about one dollar, now estimated to be $274, compared to an earlier forecast of $271 provided by Barclays.
Focus on Big Tech
Barclays strategists remain optimistic about the prospects for Big Tech firms, expecting this sector to keep delivering EPS growth that remains significantly above long-term median figures. There may be some anticipated slowdown factored in for the first half of 2025, but the resilience displayed by these tech giants remains a cornerstone of the overall market performance.
Furthermore, the potential upside for S&P 500 margins in Q4 is heavily contingent upon the performance of these technology leaders, emphasizing the interdependencies within the market structure as we approach the year-end reporting season. The strong showing from big players in the tech sector could provide the necessary momentum to support the wider market’s performance.
Frequently Asked Questions
What is the main finding from Barclays regarding the S&P 500?
Barclays finds that the S&P 500 remains dependent on technology stocks to drive growth in the ongoing earnings season.
How does January performance impact the S&P 500 for the rest of the year?
Performance in January can indicate trends for large-cap U.S. equities, with declines often forecasting lesser returns.
What are the expectations for EPS growth in the non-tech sectors?
Consensus estimates suggest non-technology sectors may report Q4 earnings per share growth that falls short of long-term medians.
How have EPS forecasts changed for fiscal year 2025?
The consensus EPS forecast for fiscal year 2025 has decreased slightly to $274 from a previous estimate of $271.
What is the outlook for Big Tech companies?
Barclays expects Big Tech to continue exhibiting robust EPS growth, remaining well above long-term median levels despite projected deceleration.
