Investors hope for positive earnings to send stock prices higher

As the fourth quarter earnings season is about to kick off in earnest, investors and analysts expect listed company profits to have turned a corner in the foregoing quarter, reporting their first quarter of earnings growth ending their prolonged earnings recession which cast a poll over the stock market among other things for much of 2023.

The stocks which began the year with a positive start extending the year end gains during the first week gave up all of such gains in the following week to end lower for the year so far.
After gaining 107.45 points or 1.01 percent in the first week in 2024 to end at 10,761.61, the benchmark All Share Price Index gave up 151.08 points or 1.40 percent last week to settle at 10,610.53. 

The S&P SL 20 index which consists of the most 20 liquid stocks also followed a similar pattern, adding 0.86 percent in the first week but ended giving up 2.32 percent to end the second week at 3,022.99.  
After the pullback in stocks last week, both investors and analysts are now waiting eagerly to parse through the earnings reports to see how the companies have fared in the final three months of last year, their earnings power and their growth prospects to see if the earnings could power the next leg of the stock market rally.  
And they will also go through the earnings releases for commentary from those companies’ key executives for how they rode out the final three months of the year and for cues for what they expect for the economy to unfold in 2024.

First Capital Research in a recent equity strategy report estimated the December quarter earnings to recover by 1 percent over the same period in 2022 after suffering deeper earnings slumps in the previous three quarters.
The earnings of the listed companies suffered steeper declines of 65 percent, 70 percent followed by a more modest 5 percent level during the first, second and third quarters of last year.

December earnings typically get the year end seasonal bump the companies experience from increased consumer spending due to the higher festive demand. Though prices remaining manifold higher from the levels before the economic crisis in 2022, softening inflation and interest rates and also the relaxed controls on imports could add an additional tailwind for companies’ earnings in 2024, giving more reasons for equity investors to be more hopeful.

Lower rates meanwhile help higher company earnings as their borrowings get re-priced at lower rates leaving more profits. However, the higher taxes could still weigh on both top and bottom-lines of companies as that will damp both demand and also the profits after higher corporate income taxes.
Declining interest rates also revalue the companies’ share prices higher as it raises the present value of future cash flows generated from the companies giving the opposite effects to the stock values when the rates go up.