Interest Rates to Influence Equity Index Performance, Predicts Morgan Stanley

Summary

  • Analysts at Morgan Stanley suggest that interest rates will continue to be a major driver for equity-index performance.
  • The team anticipates more dependency on growth outcomes for stock prices as 2024 evolves, despite the likely continuation of rate volatility.
  • Health care, tech, and communication services are predicted to deliver the highest earnings growth in 2024.
  • Strategists are focusing on earnings revisions breadth across industry groups to gauge corporate guidance, noting recent upticks in cyclical sectors.

Interest rates as the key driver

Morgan Stanley’s market experts suggested that interest rates will continue to serve as the chief influencer of equity-index performance.

Stock prices and rate volatility in 2024

The team also noted, “As 2024 advances, we foresee that stock prices will become more dependent on growth outcomes. However, rate volatility is expected to persist as a key factor to monitor throughout the year.”

EPS and sectors to watch

The projected earnings per share (EPS) for the fourth quarter of 2023 displays a 7% downturn over the previous three months. This leads to flat prospects for year-over-year EPS growth. Nevertheless, anticipating a mid-single-digit EPS beat rate, companies may still exceed reduced expectations. Moving into 2024, industry sectors like healthcare, tech, and communication services are predicted to display the highest earnings growth.

Margin and top-line performance affecting growth

Within these top-performing sectors, profit margins are anticipated to be a key driver for healthcare and communication services, while revenue performance is considered more crucial to tech earnings growth.

Gauging Corporate Guidance

As strategists examine corporate guidance, their focus is on the breadth of earnings revisions across different industry groups in the coming weeks. As per their analysis, cyclical sectors such as transportation, diversified financials, autos, banks, and materials have demonstrated positive shifts in revisions breadth over the last fortnight.

Cautious sectors

By contrast, sectors like insurance, telecom, media & entertainment, consumer services, and household products have demonstrated relative vulnerability, offering insights into the complex dynamics currently prevalent across different sectors in the market.

In conclusion, these dynamics and economic indicators may potentially influence forex trading, impacting assets related to the healthcare, tech, and communication services sectors among others.

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