U.S. Bank Wealth Management says S&P looks range-bound

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By Davit Kirakosyan

U.S. Bank Wealth Management analysts wrote a weekly "Market Analysis" report, which identified the S&P 500 as rangebound due to inflation and the Fed's recent interest rate hike, mixed messaging surrounding uninsured deposits, and the approaching Q1 earnings reports.

Inflation, interest rates, and earnings are key factors impacting equity returns, with persistent inflation, rising interest rates, and uncertain earnings growth in 2023 being headwinds to equity prices, as per the report.

“Growth stocks are leading year-to-date equity market performance, though overall performance lacks breadth. The S&P 500 is up 3.4% for the year as of Friday’s close, far below the 13% gain of the technology- and growth-oriented NASDAQ Composite. Additionally, the growth-oriented Communication Services (18.4%), Consumer Discretionary (9.6%) and Information Technology (17.6%) sectors, the worst-performers in 2022, are the only S&P 500 sectors posting gains for the year,” the report said, mentioning that it is difficult to envision equities trending meaningfully higher without greater participation from other sectors.

The report highlighted that Real Estate, Energy, Utilities, Consumer Staples and Financials — sectors with the highest dividend yields — are among the worst-performing sectors year-to-date.

Consensus earnings projections for 2023 are flat year-over-year, and the S&P 500 trades at 18.0 times trailing- and forward-12-month estimates. “We expect visibility of 2023 estimates will improve following first quarter results and forward guidance from company managers,” wrote the analysts.

The Q1 reporting period unofficially begins in April, and the analysts will be watching consumer and business spending trends, the resilience of consumer spending on “experiences” versus durable goods, supply chain inefficiencies, inventory levels, profit margins, and bank deposit and lending trends.