Citi: 'Very high likelihood' of a positive Q1 EPS surprise

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Citi: 'Very high likelihood' of a positive Q1 EPS surprise
Credit: © Reuters.

Citi strategists have updated their multi-variable regression analysis, which integrates key macroeconomic indicators with S&P 500 earnings growth.

Their findings suggest “a very high likelihood of a positive Q1 EPS surprise, but relatively limited guidance follow-through,” they said in a recent note.

“Better-than-expected macro data and rising projections imply there is a 50% chance of the S&P 500 reaching or exceeding our $245 full-year earnings estimate. For context, that probability was circa 30% in November,” analysts wrote.

The Wall Street giant anticipates that the Q1 reporting season will mirror the previous quarter, characterized by a strong number of earnings beats but limited follow-through on guidance.

Their regression analysis, supplemented by forward-looking macroeconomic estimates, predicts a 76% chance that Q1 S&P 500 EPS actuals will surpass the bottom-up consensus.

However, the probability of earnings upside for the rest of 2024 dropped to 49%, hinting that corporations may be hesitant to raise their outlooks.

Overall, Citi believes that solid fundamentals are likely to support the markets, even if the Federal Reserve does not cut rates in the near term.

Historically, the S&P 500 has achieved high single-digit earnings growth during periods when the Fed has maintained steady interest rates.

“Our EPS growth estimate circa 10% exceeds that level, implying current index levels are not Fed dependent. However, a blowoff top may be more difficult without some degree of Fed cuts,” said analysts.

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