Closing the Quarter – Q4'23

Heading into this past earnings season, our Q4’23 Inside The Buy-Side® Earnings Primer® registered a more optimistic tone overall after last quarter’s survey found sentiment increasingly trending neutral. Buttressing this notable shift in mindset was the view that the macro outlook would improve in 2024 amid expectations for a lower interest rate environment. Still, concerns around geopolitics and slowing growth remained.

With Q4’23 earnings season in the books, we “Close the Quarter” with some notable themes:

1. Earnings: Better-than-expected fundamental Q4 earnings reports were bolstered by several macro tailwinds, including a resilient consumer, government spending, and the AI investment cycle.
2. Guidance Moves and Consensus Shifts: In general, company forecasts are calling for a weaker first-half, followed by strength toward the end of the year. Guidance and executive commentary resulted in relatively few consensus cuts to annual figures, with more analysts opting to boost full year 2024 estimates for both revenue and EPS.
3. Capital Allocation: Sequential cash uses indicate double-digit increases in capex and an uptick in deal activity more broadly.

Despite warning signs that have caused concerns in prior economic cycles (for example, an inverted yield curve and declines in certain leading economic indicators), many companies at a minimum seem increasingly less worried, and in some cases, outright more confident based on recent quarterly management commentary.

However, despite the recent market exuberance, there remain percolating undercurrents of caution in executive earnings addresses that still hint at a more measured outlook in the nearer term (under promise and over deliver is alive and well). There also remains mixed views on what the Federal Reserve will do and when, and geopolitical issues without conceivable ends continue to be a thorn in the side of the Fed getting inflation down to its target. And, with the November election on the horizon, companies should brace for heightened volatility and a potential shift in focus, as political developments may sway market sentiment and redirect investor attention.