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Weekly commentary

What to look for this earnings season

Saira Malik
Chief Investment Officer
Saira Malik photo

Bottom line up top: 

Optimism hinges in part on continued economic resilience and cooling inflation to drive positive earnings revisions during the reporting cycle.
CIO weekly commentary chart 1

Portfolio considerations


Where to go when you reach the fork in the road. The U.S. equity market rally remains bifurcated, with the megacap Magnificent Seven stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) responsible for the bulk of the S&P 500’s advance in 2024, while almost 40% of the index is in negative territory. As a result, the market cap-weighted S&P 500 is up +18.0% year-todate through mid-July, versus just +6.9% for the equal-weighted version of the index. Some market participants may be content to stay put on the narrow path of information technology dominance, but there are risks in relying on such a concentrated approach.

In our view, there’s value to be found by allocating to other sectors that have missed out on much of the year’s big gains and may be due for a recovery. These include materials and health care, both of which offer more attractive valuations than the broader market (Figure 2).

  • The materials sector is expected to post negative earnings growth for the second quarter before rebounding in the back half of 2024. U.S. chemical rail shipments are up 4% to 5% year-to-date amid strong export demand. And while most companies in this sector have forecasted flat to modestly higher volumes in Q2 compared to Q1, we expect levels to rise later in the year. Demand for fine fragrance chemicals looks favorable, reflecting the strength of higher-end consumers. We anticipate robust spending levels from this cohort will continue. Additionally, chemicals prices, which skyrocketed during Covid, peaking at a 68% rise, have since receded by roughly 28% — a positive for the materials sector as a whole.
  • Within health care, our two favorite subsectors are medical technology (medtech) and managed care. Medtech has seen business accelerate due to soaring demand for elective procedures since the pandemic. This earnings season we’ll pay close attention to companies’ perspective on how sustainable this trend may be, but in the short-to-medium term it should have a positive effect on medtech earnings. As for managed care, companies have healthy cash levels and should see an improvement in operating earnings in Q2 reports. During the first half of 2024, higher utilization caused managed care stocks to underperform. We expect lower utilization rates going forward, however, which should provide a boost to that industry.
There’s value to be found by allocating to certain sectors that have missed out on much of the year’s big gains and could be due for a recovery.
CIO weekly commentary chart 1

Nuveen’s Global Investment Committee (GIC) brings together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets.

Regular meetings of the GIC lead to published outlooks that offer:

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