Sector Earnings Growth and Valuation into 2024

Back in July of last year the US stock market using the S&P 500 as a proxy was down about -23% and needed a 30% gain to get back to the prior high and I shared on ASYMMETRY® Observations "Are Growth Sectors Technology, Consumer Cyclicals, and Communication Services more Undervalued than Value?"

I said, growth sectors like technology, consumer cyclical, and communications have seen the brunt of the selling this year, and growth is now more “undervalued” than value sectors according to data from CFRA.

Including the table below, stocks are ranked in accordance with qualitative STARS recommendations, which are determined and assigned by equity analysts, with 5 being the highest rating, and I highlighted the highest ranked sectors according to this fundamental  valuation. 

Technology, Consumer Discretionary, and Communication Services had become the most undervalued, although undervalued stocks can get much more undervalued and prices fall more in a recessionary bear market. 

Here we are a year later, and those three sectors were the strongest uptrends, recovering much of their declines, so I thought I would share an update. 

The ratings using CFRA data haven't changed much, and Information Technology and Communications Services sectors remain the highest rated. 

While most investment managers using fundamental earnings growth and valuation like this for decision making. we primarily focus on the price trend direction, relative strength, momentum, and volatility to determine when to buy or sell, but we still monitor these fundamental metrics.  

The more interesting right now is year of year (Y/Y) earnings per share changes as seen below. 

As we're now in the second half of 2023, the rate of change in earnings has been red for many sectors, and the popular tech sector has been flat, while energy is deep in the red after a very green prior year. 

The 2024 estimates suggest a lot of improvement is expected next year.

However, if there is a recession, that'll change.