Stocks will most likely under-react to earnings, according to analysts at Bernstein in a note Friday.
Analysts explained that S&P 500 earnings for the fourth quarter of 2023 are expected to decline by 0.1% year-over-year on 2.9% higher revenues based on consensus estimates. Meanwhile, earnings growth forecasts are positive for 5 out of 11 sectors, led by communications services and real estate, while healthcare and energy are expected to be the largest drags.
In addition, the "Magnificent 7" continues to dominate, with EPS expected to be 48% higher than a year ago on 12% higher revenues.
"In our prior research, we've found that stocks with the highest levels of passive and non-institutional ownership have experienced more muted reactions to both beats and misses than other stocks with a more active institutional ownership profile," added the analysts.
Analysts also noted that software stocks lead the industry crowding rankings by the concentration of stocks in the top quintile of the Bernstein Crowding Model relative to industry size, while the least crowded industry is Banks.