CIO Strategy BulletinArticle27 Apr 2024

Strategies For Equity Market Myopia

CIO Strategy Bulletin

One can broaden a portfolio to cut down on the idiosyncratic risk of concentrated stock positions. In the market we foresee in the year ahead, we believe doing so will not weaken performance.

Key Takeaways

  • We believe earnings per share (EPS) for the S&P 500 may have risen nearly 10% in the year through 1Q 2024 rather than the reduced gain of 1.3% predicted by analysts who cut estimates sharply just ahead of results. While large cap tech and telecom services firms are expected to post large EPS gains in excess of 20% in 1Q, we expect a broadening of profit gains for other industry sectors in the next few quarters.
  • Only the future counts for determining the value of equities. A good quarter past will not matter for a firm that is closing its doors. Therefore, guidance on future quarters matters most, and some firms that have experienced a huge lift to estimates in the year past will struggle to keep exceeding expectations.
  • Full year estimates of US corporate profits have fallen below our own forecast near an 8% gain for 2024. Yet for many firms, beating in 1Q will merely allow them to maintain rather than boost full year estimates. While large cap US tech shares weakened ahead of EPS results, “FOMO” (fear of missing out) strategies that simply chase the best performers are unlikely to succeed in the way they have during the past half year.

Portfolio Implications

Our expectations are consistent with high single-digit gains for the S&P 500 index overall in 2024, but likely stronger gains for the equal-weight S&P 500 (please see Wealth Outlook 2024). The drop in EPS estimates and share prices in April has moderately improved the return outlook from here.

We’ve long identified Tech and Healthcare as sectors with strong long-term growth prospects. While tech recovered last year after its 2022 swoon, this year healthcare looks poised for recovery. Swerving away from a “FOMO market,” investors can seek to align portfolios with the longest standing, most consistent drivers of returns. This may include investing in dividend growth and “quality” – a measure of corporate risk. We also believe investors can seek to reduce idiosyncratic portfolio risk with “broadening” strategies as fundamentals improve for more firms. 

Want more insights?


Sign up to receive our newsletter providing a roundup of recent content and updates on new reports.

Sign up to receive the latest news from Citi.