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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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Endnotes 

Sources

All market and economic data from Bloomberg, FactSet and Morningstar. 

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals.

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.

Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance does not predict or guarantee future results. Investing involves risk; principal loss is possible.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.

Important information on risk

All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk, active management risk, and growth stock risk; dividends are not guaranteed. Foreign investments involve additional risks, including currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. The use of derivatives involves additional risk and transaction costs. 

Nuveen, LLC provides investment solutions through its investment specialists.

This information does not constitute investment research as defined under MiFID.

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