Cautiously Optimistic Investor Sentiment Prevails as Intact Secular Growth Trends and Constructive Views on Order Rates Support Firm Setup in 2026; Policy Impact Serves as a Governor
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Survey Finds Investor Headiness for Growth Persists with Expectations Intact for 2026 Expansion; Frothy Valuations, Policy Impact, Geopolitics, and AI Bubble Curb Enthusiasm Somewhat
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This Week in Earnings – Q1'24
Industrials in our Sector Beat
While performances have varied from company to company, in aggregate, Industrials currently represent the only sector in the S&P 500 where the majority of reported top-line figures have come in below consensus. Moreover, while bottom-line results have fared more positively relative to estimates, those beating earnings consensus is still below the S&P 500 average (73% vs. 78%, respectively).
Despite executives pointing to continued macro headwinds, very few companies have lowered initial annual guides delivered at the top of the year, and many are in fact raising (albeit, not at propensities remarkably different than the broader market). Indeed, the Manufacturing PMI came up for air during the latest March print after 16 months of readings in contraction territory, in addition to a well-received improvement in the New Orders Index. While one month does not make a trend, these data points imply light at the end of this tunnel for some of the harder-hit segments, such as freight, which has been in a recession. As one executive put it, “We should be getting closer to the end of this than the beginning”.
Key Themes
- Outlook – Tough Market Conditions Persist across Certain Industries Such as Transportation and Building Products, but Companies are “Controlling the Controllables” and Underlying Conditions Seem to be “Building Momentum” with “Back-Half Strength” a Consistent Theme
- Demand and Order Trends – Moving Past Notable Inclement Weather Impact in Q1, Commentary Suggests Accelerating Backlog Growth in Coming Quarters; Freight Remains a Sore Spot, though Many Suggest We Have Reached a Bottom
- Inflation and Pricing – Persistent Inflation Leads to Continued Pricing Actions Leads to Persistent Inflation
- Inventory – As Noted in our Recent Inside The Buy-Side® Industrial Sentiment Survey®, Destocking Woes Enter the Rearview Mirror as Inventory Trends Find a New Normal
- Supply Chain – An Ongoing Challenge, as Labor Issues and Geopolitical Risks Continue to Weigh on Reliability
- Productivity Enhancements – Executives Tout the Benefits of Several Quarters of Cost-Optimization Efforts Coming to Fruition
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