January 08, 2024

US growth forecasts for 2024

The U.S. economy faces significant challenges, but analysts predict strong corporate profit growth in 2024. Despite concerns about economic growth slowing down, it is expected that low-interest rates and decreasing inflation will drive corporate earnings in the coming years.

Corporate Corporate Profit Landscape in the United States

According to estimates compiled by LSEG, overall S&P 500 earnings are expected to increase by 11.1% in 2024, compared to the modest 3.1% increase recorded last year. This optimistic forecast is primarily based on two key factors: the decrease in interest rates and low inflation.

The S&P 500 index is currently trading at 19.8 times earnings estimates for the next 12 months, which is above its long-term average of 15.6 times. These elevated valuations require solid earnings growth to justify current stock prices.

The Role of Interest Rates and Inflation in Profit GrowthThe decline in interest rates has been a key driver of the stock market's rebound in recent months. After a campaign of rate hikes starting in 2022, the Federal Reserve opened the door to interest rate cuts in 2024, boosting investor confidence.This reduction in interest rates not only lowers borrowing costs for companies but also stimulates consumer spending and encourages business investment. Additionally, low inflation helps strengthen corporate earnings by allowing companies to control costs and improve profit margins.

Challenges for Profit Growth in 2024

Despite optimistic outlooks, legitimate concerns exist about economic growth and its effects on corporate earnings. The persistent impact of higher interest rates could negatively affect both the overall economy and company profits. U.S. economic growth accelerated in the third quarter, with a 4.9% increase in gross domestic product at an annualized rate, according to the Bureau of Economic Analysis of the Department of Commerce. However, it is important to note that profit estimates could weaken as companies report fourth-quarter results and provide guidance for the next year.

Global Impact on Corporate Earnings

The performance of the global economy also plays a crucial role in the growth of corporate earnings in the United States. Companies like FedEx can serve as indicators of the global economy due to their reach and presence worldwide. Considering the global economic context is essential when evaluating the prospects for corporate earnings growth in the United States. Analysts must consider both internal and external factors that could affect the performance of companies in the coming years.

Conclusions

Despite economic challenges and concerns about slowing growth, analysts maintain an optimistic forecast for corporate earnings in the United States in 2024. Low inflation and lower interest rates are expected to drive earnings growth, thus supporting the elevated valuations in the stock market.

However, it is crucial to consider the risks and potential challenges that could impact earnings growth. Higher interest rates and the global economic outlook are key factors to consider when assessing the prospects of companies in the coming years.