US equity futures point to a mixed market open later this morning with the earnings rubber will start to hit the road today as the December quarter reporting season moves into a higher gear.
Setting the stage for what could be the start of a sobering period for the market, the Dow Jones Industrial Average closed above 38,000 for the first time and the S&P 500 hit a new record high. Despite that new record, as of last night’s market close, the Nasdaq Composite was outperforming both of those market benchmarks. Throwing potential flags on the field, the equal-weight version of the S&P 500 is down 0.8% so far this year and the small-cap heavy Russell 2000 is off 2.2%.
What investors are looking to determine is how realistic are consensus expectations that call for the S&P 500 to grow its EPS by more than 11% this year compared to 2023. Several factors, including the ongoing disruptions in the Red Sea and its impact on supply chains, point to that rate of growth being rather unlikely. Several firms have already warned about that disruption to supply chains because at least 2,300 ships are taking lengthy detours to avoid Houthi militants’ attacks in the Red Sea — a waterway that normally handles over 12% of global sea trade.
Investors will be trying to determine the likely rate of that EPS growth for that market barometer and assess if it supports further gains following the continued market melt-up over the last 13 weeks. We would not be surprised to see the market gyrate based on the latest high-profile batch of earnings reports as that more realistic EPS growth rate is determined. The odds of it being higher than the currently expected 11% is rather low in our view, and based on what we know as of today a much more likely figure is in the 5%-7% range.
Now to see how right that thinking is…