2024 EPS expectations ‘too high’ says Morgan Stanley

U.S. equities may face sustained pressure through year-end, as per Morgan Stanley strategists.

The equity strategists and their colleagues point out that earnings estimates for the fourth quarter of 2023 and 2024 are likely overly optimistic. In addition, they anticipate the effects of policy tightening to manifest on both a monetary and fiscal level.

The strategists highlight that many investors are overly focused on the Federal Reserve’s next steps and the price, often neglecting fundamental factors.

Moreover, the early stages of the third-quarter reporting season have seen disappointing reactions to company results, with the median one-day price response at -1.6% in absolute terms, compared to -0.5% in the previous quarter.

Furthermore, the percentage of positive price reactions has decreased to 38% from 47% in the last quarter. The breakdown of market breadth indicates ongoing pressure on the index, even though it has reached oversold levels in the near term.

“Revisions breadth for the S&P 500 decelerated further into negative territory last week (meaning more downward than upward revisions) led by Professional Services, Autos, Real Estate Management and Consumer Services,” the analysts wrote in a note.

“Last week brought further risks to the consensus 4Q rally view.”