Rising Earnings Expectations Could Make It Harder for Companies To Wow Investors

By
Naomi Buchanan
Naomi Buchanan
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Naomi Buchanan is a reporter at Investopedia breaking down news stories that impact investors.
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Published July 08, 2024
04:18 PM EDT
New York Stock Exchange

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Key Takeaways

  • High expectations heading into earnings season could make it harder for companies to impress investors, contributing to market volatility, according to Citi Research analysts.
  • The analysts said companies will likely need "raises coupled with solid execution driven beats" to wow investors.
  • Artificial intelligence is also expected to be a major theme in earning results.
  • Citi and Oppenheimer analysts raised their S&P 500 targets to 5,600 and 5,900, respectively.

As earnings season approaches, Citi Research analysts warned high expectations could make it harder for companies to impress investors, contributing to market volatility.

Earnings season is set to kick off later this week, with banks including JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) reporting results on Friday.

Meeting Estimates May Not Be Enough To Satisfy Investors

"Given the lofty implied growth expectations, markets likely need to see raises coupled with solid execution driven beats to sustain recent gains or push higher from here," Citi analysts said.

The analysts noted that "while fundamental trends are positive and consensus estimates are attainable, valuations suggest the buy-side will demand more."

Hiking S&P 500 Targets Ahead of Earnings

Citi analysts lifted their year-end S&P 500 target to 5,600 with earnings per share (EPS) of $270, saying they "expect valuations to hold into year-end but compress in the year ahead."

Oppenheimer analysts also raised their price objective for the index to 5,900 with EPS at $255.

The analysts noted that "some near term profit-taking in the day to day action of the market particularly in segments of the market that have had exceptional run-ups since last year into this year should be expected." They added that volatility could offer investors an opportunity for investors to buy at a lower price.

AI To Take Center Stage

The analysts also said they expect artificial intelligence (AI) will continue to be a top theme in upcoming earnings reports.

"Markets are fairly pricing premium growth expectations for Artificial Intelligence," Citi analysts said, though they noted "pockets of concern suggest using fundamental overlays."

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  1. Citi Research. "PULSE MONITOR Beat-and-Raise Needed."

  2. Oppenheimer Asset Management. "Want to Take You Higher (Redux) Economic Resilience this Late in the Fed’s Hike Cycle Suggests to Us that Further Upside Exists for the S&P 500 Stocks."

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