Tech Was Best in Q4 Earnings but Look to the Rest as Market Broadens

Q4 earnings revealed a tale of two markets in the U.S., with tech and internet players hitting home runs as other sectors and industries played small ball in comparison. Yet Fundamental Equities investor Carrie King sees the market broadening in the quarters ahead, opening up a wider playing field for stock pickers.

Dispersion on display

S&P 500 earnings were positive for a second consecutive quarter, with the lion’s share of Q4 growth powered by the tech and internet stocks that led markets higher in 2023. Earnings growth of 4.4% at the index level masks dispersion in year-over-year (yoy) results not only between sectors, but within them.

Consumer discretionary (+52%) and communication services (+43%), together holding four of the “Magnificent 7” mega-cap stocks, were Q4 standouts. Energy (-25%) and materials (-20%) were the main laggards as commodities prices fell with moderating inflation.

Healthcare, one of our favored sectors, saw negative earnings as well, yet this was driven by only four names in a category that includes more than 50. This illustrates the differentiation we’re seeing within sectors (see chart below) as well as the importance of stock selection to parse potential winners and losers and maximize a portfolio’s return prospects. While earnings dispersion is not new or unexpected, we believe it can be more informative in an environment where company fundamentals may be poised to drive more price action after an extended period in which macro concerns dominated markets.

Uneven earnings