The most important catalyst for the stock market in 2024 will be Q4 earnings. Stock market earnings season starts Friday with JP Morgan Chase and others reporting, and this Q4 stock market earnings season will be the biggest catalyst for the 2024 stock market prediction. So how to start investing in the stock market in 2024? If you want to know how to invest money in the stock market, look for stocks and sectors that are undervalued and most likely to rise, such as the sectors shown in this video. This video isn’t a full stock market course, but when it comes to stock market investing for beginners, this video will show you the most important things you need to watch out for to help you become profitable. Stock market investing is easy if you know what to watch out for in the share market. This stock market for beginners guide to Q4 earnings season should help you navigate the confusing earnings season, and help you find the best stocks to buy now.
After the longest winning streak in over 30 years, the stock market rally came to an abrupt halt last week as investors sold stocks over fears about what comes next. The most important catalyst for the stock market in 2024 is starting right now, and this could change everything. I’m Stock Curry. I’m a former Merrill Lynch and Morgan Stanley investment banker. I have over 25 years of trading experience. And these are the kind of catalysts that you need to watch out for. The stock market rally has stalled and now comes earnings season. Earnings season starts on Friday with JP Morgan Chase, Delta, Wells Fargo, Blackrock, Citibank, BNY Mellon and others all reporting earnings on Friday.
The reason that these Q4 earnings are going to be the most important catalyst for the stock market in 2024 is because, ultimately, stocks are priced based upon the fair valuation, based upon earnings. Now, yes, obviously, stocks can be much higher priced than fair valuation if market sentiment is bullish enough, and stocks can be much lower priced than fair valuation if market sentiment is bearish enough. Now over the past two months in November and December, we saw a major rally in stocks. In fact, it was the biggest rally in the stock market in over 30 years. The Nasdaq actually posted its largest gain since the dot com bubble in 1999. And all of this has caused market investors in January to say, wait a second, we have earnings coming up, and earnings are far more important than any psychological bullishness in the market. Because of that, investors have started to sell off these stocks that are extremely overbought and overvalued as they become fearful that earnings might actually cause stocks to drop once again.
After a recent pullback in stocks, investors are looking to the coming earnings season for clarity on companies growth prospects. And after the recent rally over the past two months, stocks are trading at extremely high valuations, which means earnings are going to have to be above excellent in order for these companies to maintain those high valuations. If we look at the S&P 500 sectors price to earnings ratios now, in blue, compared to the median since 1999, in gray, we can see that sectors such as technology and consumer discretionary are trading far above their historical averages. And in fact, almost all sectors are trading above their historical averages. This means that stock prices currently are overvalued, the stock prices are too high. And if they’re going to come down to fair value, then they’re going to have to decline down to fair valuation. However, there is also a possibility that earnings could be so great, so incredible, so unexpectedly good, that the company’s earnings actually grow into the current prices that the stocks are trading at.
For many investors, quarterly results and commentary from executives will help signal if the recent stock market declines from last week are warranted, or whether companies profits are strong enough to renew the rally that we saw in November and December. One of the reasons we saw a decline in the stock market in 2022 is because we saw a decline in earnings for over four quarters in a row. The earnings growth from companies declined and that caused stock prices to decline. But last quarter, we saw earnings growth increase for the first time in many, many months. And that’s why we saw a major stock market rally last quarter.
The good news for bulls is that analysts expect companies in the S&P 500 to report a second straight quarter of earnings growth. Profits for the first quarter are projected to have risen 1.3% from the same period from a year earlier. However, the bear case is that that 1.3% profit growth is down from the 8% profit growth that analysts had projected at the end of September. So are bulls right? Are we going to have a major stock market rally this year? Or are bears right? Are we going to have a major crash? Well, one thing’s for sure, so long as earnings continue to grow, we’re definitely not going to have the type of crash we saw in 2022. At most, it might be a small pullback.
Now in order for stocks to continue to go up from their significantly high valuations from here, we’re going to have to see some surprise earnings results. We’re gonna have to see a lot of companies beat earnings expectations in big, major ways. And in order for companies to beat earnings expectations, we’re going to have to see the kind of growth that’s near 8% like the market’s currently pricing in. If we do in fact only see earnings growth around 1.3%, that’s going to be a huge disappointment to the market. And a fear over earnings disappointing is why stocks have started to sell off.
Now, one thing that we can do in order to predict how earnings are going to come out, is look at how some of the early companies who report earnings a little bit earlier than your typical earnings season, which have already reported. Nike and FedEx, which reported their latest quarterly results in December, both lowered their revenue forecast and warned of weak demand. Conga Brands, the maker of Healthy Choice frozen meals and Slim Jim meat sticks, also cut its annual guidance in the past week after sales volumes slipped. And Walgreens Boots Alliance said Thursday that it would cut its dividend, which sent shares tumbling.
Well, that’s not good. So far, the companies that have reported early have reported dismal earnings, even worse than analyst expectations. And the fear is that this earnings season, we’re going to see more companies miss earnings expectations. And the fear is that stocks are going to continue to decline. That’s why we’re seeing stocks start to decline already. But don’t fear, there is hope for bulls. Just like many sectors are overbought and will most likely come down, there are a few sectors that are still undervalued that will most likely rise so long as companies can report decent earnings.
Some bullish investors are focusing on sectors that lagged behind last year, believing that those beaten down areas could bounce back this year. Sectors such as real estate, communication services, and energy are all trading at multiples below their historical averages. So these are all sectors that could rise, even if companies in those sectors only report mediocre earnings. Just because they are undervalued, these stocks would most likely rise to get back up to fair valuation. So there is hope for bulls if you pick the right stocks. Overall for the stock market in general, as well as technology and a few other sectors, high valuations basically mean that markets are priced for perfection and then some. And because of that, we may see an overall stock market decline, even if we do see a few sectors start to go up.
Now another thing that we can do to look at how earnings might come out, is to look at a few individual companies, and make some predictions based upon history and some of the news that we’ve gotten recently. Take Tesla for example, which has been in a steady decline for the past few years. Despite Tesla trading at nearly half of its all time high, the PE ratio on Tesla is at 75. 75 is significantly higher than the average tech PE ratio of 20. Now in some cases, that might be extremely overvalued, leading to a huge decline in Tesla stock. In other cases, Tesla stock might be worth that valuation if we see earnings growth that lines up with that kind of forward PE ratio.
So is Tesla growing at a huge significant increase of around 75% per year? Well, unfortunately no. Over the past four quarters, we’ve seen Tesla’s earnings drop from $1.07 per share down to $0.73 per share, up slightly to $0.78 per share, and then down to $0.53 per share. Two of the past four quarters have shown significant declines in year over year growth, including the last quarter, which showed a 44% decrease in year over year earnings. Tesla has a major problem. It’s priced like a stock that’s growing at 75% per year, but the results are that Tesla’s growth is actually declining. Meaning it’s priced like a massive growth stock, but the earnings is actually going down.
And this earnings season could be the worst one of all as Tesla cut prices in China, as a price war truce failed. Tesla has been in a price war with BYD as it attempts to become the largest automaker in China. Now the problem with cutting prices this significantly, is that it absolutely kills profit margins, and that is why we’re seeing Tesla’s earnings, or profits, decline so significantly over the past year. Now bulls would point to the fact that Tesla’s delivery numbers in Q4 were 484,507, which is one of their best quarters ever. And those numbers represent a delivery growth of 38% year over year, which is great. But bears would also point out that in 2022, the company reported 40% growth year over year. So the rate of growth is declining. The biggest problem for Tesla, though, is that those delivery numbers don’t mean anything if those delivery numbers mean lower profits for the company.
And that is the big fear right now. Because of Tesla’s fight with BYD to try to become the largest automaker in China, the price decreases are going to cause a significant decline in earnings. And quite possibly, we’re even going to see a loss this quarter, which would be a significantly bad thing for Tesla. And to make matters even worse, BYD just overtook Tesla to become the world’s largest EV maker. So Tesla significantly cut the price of their vehicles in order to try to beat BYD, and Tesla lost. Tesla has now lost and is no longer the world’s largest EV maker – that is now BYD. So unfortunately for Tesla, they’re losing in every single market, and this is just not good news for Tesla. Yes, they got the Cybertruck coming up, which certainly caused a lot of hype earlier this year, and caused the stock to rally from about $200 to about $250. But recently, we’ve been seeing that price start to come back down as investors start to look at earnings, which, as I said earlier in this video, is ultimately what stocks are priced based off of.
Now, it’s not just Tesla that’s having problems. You may have seen this photo going around the internet of a huge hole in the side of Boeing’s new Max-9 plane. The FAA grounded more than 170 Boeing 737 Max-9s after that section of Alaska Airlines plane blew out. The last time the FAA grounded Boeing’s Max-8 planes, Boeing stock dropped by nearly 50%. So this could be a significant decline for Boeing stock, as well as the Dow. And the largest US radio company, Audacity, just filed for bankruptcy protection. So despite all of the hype and all of the rally from the past two months, stocks are starting to get back to reality as investors start to realize that earnings probably aren’t going to be that great. And that is why this earnings season is going to be the biggest, most important catalyst for the stock market in 2024.