High investor expectations shape the market situation

The season for publishing company results for the 4th quarter is underway around the world. In the US, forecasts have so far been exceeded by 70%. companies, but the rebound in earnings is weaker than in the previous quarter. In Europe, however, approximately half of the companies beat the forecasts. The first market reaction to the results of Alphabet or Microsoft shows that sometimes even good results may not meet the high market expectations.

Financial results better than expected, but...

In the USA, half of the companies from the S&P500 index have already reported their results for the 4th quarter of 2023. Over 70%. of them exceeded the already significantly reduced forecasts of stock market analysts. All sectors also beat these forecasts, led by energy and healthcare. Company revenues increased by 3% and profits by 6%. If we exclude the energy industry, the increase in profits was up to 10%. The companies included those that disappointed the market, such as Tesla and Intel. There were also those with very attractive heights, such as: Meta, Amazon or Netflix. Shares of Meta, owner of, among others, Facebook and Instagram, thanks to very good results, have increased by almost 33% since the beginning of the year.

However, company results cannot be considered in isolation from investor expectations. Both Alphabet and Microsoft saw this, as their shares lost despite increasing profits. The bar is currently set high for technology and AI-related companies.

Profits of the "Magnificent Seven" - the seven largest technology companies: Nvidia, Tesla, Goal, Apple Lossless Audio CODEC (ALAC),, Amazon, Microsoft, Alphabet – increased by over 50%. compared to the decline in the profit of the remaining 493 companies from the S&P500 index by 10%. The energy sector recorded the largest decline in profits.

In Europe the situation is worse than in the USA

The percentage of companies beating forecasts is always lower because fewer companies provide forecasts. At this point, the forecast results have been exceeded by approximately 50%. companies in Europe, which is a worse than average result. European companies' performance is lower due to a weaker economy, higher debt and lower margins. Company turnover fell by approximately 3% and profits by 9%. The largest companies such as French LVMH and or Dutch ASML, achieved good results. In turn, the weakest results were presented by European banks from BNP Paribas to ING.

The positive scenario for the stock exchange for 2024 is currently based on two pillars: lower interest rates and improving profits. Both of these factors have recently encountered unexpected obstacles. FED postpones the first reduction in interest rates. Fourth-quarter earnings were slightly weaker than expected and stalled the forecast earnings improvement. However, it is worth remembering that both of these factors will be more important in the second half of the year than in the first. By then, central banks will start cutting rates and profits will return to double-digit growth. For now, the stock markets are driven by expectations that such a scenario will materialize.

The growth of corporate profits in the coming quarters will be supported by soft

landing of the US economy and recovery in Europe, as well as the low base of last year's "earnings recession" in the US and developing trends in artificial intelligence. Lower inflation reduces the pressure on margins. European profits are currently the most depressed and cyclically should rebound the most.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.