In its latest daily note, Sevens Report Research said there are two important differences for investors to consider in 2024.
The group states that the changes mean that events that were tailwinds for stocks in 2023, such as falling yields and earnings results, will become neutral to potentially negative in 2024.
The first is that falling yields won't be positive for stocks. Sevens believes the dovish Fed pivot is fully priced into stocks, with the S&P 500 just under 4,800. "The market has priced in six Fed rate cuts and year-end 2024 fed funds below 4%," analysts said.
"If we see the 10-year Treasury yield continue to fall to the low 3% or sub 3% range, that's not going to be a major tailwind for stocks because that won't be forecasting a dovish Fed, it'll be forecasting slowing growth," analysts explained. "And those falling yields will then become a harbinger of a potential economic slowdown and not the welcomed signal of a Fed that's finally turning dovish."
The second difference is that earnings results won't have low expectations to excuse poor performance.
"Consensus S&P 500 earnings growth is nearly 10% year over year, well above the longer-term averages of around 5%-ish annual growth. And keep in mind, at 4,800 the S&P 500 is trading over 19.5X that $245 earnings estimate, which means there's little room for disappointment from a valuation perspective," analysts explained. "Bottom line, 'ok' earnings won't be good enough and we got a preview of that in the Q3 numbers."