Equity Research
Industry Update — May 3, 2024
Equity Strategy
Eq Strat: Momentum & Earnings Reactions
The Week in 60 Seconds
Equity Analyst(s)
Our Call
The FOMC helped the Mo’ trade and hurt the reflation trade this week, as GDP is unlikely Christopher P. Harvey
Equity Analyst | Wells Fargo Securities, LLC
to accelerate from the 2.4% consensus and inflation will need to settle down before the Fed
moves. During earnings season Mo' was not your friend. Gary S. Liebowitz, CFA
Equity Analyst | Wells Fargo Securities, LLC
Summary. The SPX is -0.7% WTD (YTD: +6.6%), as Tuesday's hotter-than-expected ECI
Upcoming S&P500 Earnings Calendar (est.)
and cooler-than-expected consumer confidence readings raised stagflation concerns.
Wednesday's FOMC presented few surprises other than the Fed's balance sheet runoff Date Before Open After Close
slowdown, in our view. The US MSCI Momentum ETF (MTUM) fell -1.4% WTD, but is still CBOE, CBRE,
Today BRK/B (Sat. May 5)
+13% YTD, far outperforming other MSCI factor ETFs (Quality, +7%; MinVol, +4%; Value, EQIX(?), HSY, TRMB
0%). We favor Mo' in a status-quo Fed/economic/credit spread environment. AXON, FIS, FMC,
Mon
L, TSN IFF, MCHP, O, SPG,
5/6
Q1 2024 Earnings Summary & Post-Earnings Stock Reactions (relative to index; sales and earnings in $B) VRTX, WMB
BLDR, DIS, DUK,
Thru morning of % % Beat Beat/ 1-day reaction Since reporting
May 2 Rpt 4Q23 Typical Est Actual (Miss) Beats Misses Overall Beats Misses Overall EXPD, HSIC, J, AIZ, ANET, BIO, EA,
Tue
Large-cap EPS 78% 79% ~75% 379.5 413.4 8.9% (0.1)% (3.2)% (0.7)% (0.1)% (2.9)% (0.6)% KVUE, MKTX, NRG, JKHY, MCK, MTCH,
5/7
Large-cap sales 78% 57% ~65% 3,193 3,228 1.1% 0.4% (2.6)% (0.7)% 0.5% (2.4)% (0.6)% ROK, SRE, TDG, OXY, WYNN
WAT
Small-cap EPS 57% 64% ~65% 10.41 11.14 7.0% 1.5% (3.4)% (0.1)% 3.0% (2.9)% 1.2%
Small-cap sales 57% 51% ~55% 163.2 164.3 0.6% 2.2% (3.3)% (0.1)% 3.2% (1.7)% 1.2% Wed BR, EMR, FOXA, NI, ABNB, ATO, CE,
Large- and small-cap returns are relative to S&P500 (SPX) and S&P600 (SML) indices, respectively. 5/8 UBER CPAY, NWSA, STE
Source: Bloomberg and Wells Fargo Securities, LLC CEG, CRL, EPAM,
Thu AKAM, GEN, MTD,
EVRG, SOLV, TPR,
5/9 PODD
Q1 Earnings Macro. Although large caps (SPX) have reported higher aggregate sales VTRS, WBD
and EPS upside, it's the small caps (SML) that have seen superior post-earnings relative Fri
- -
reactions in both the 1-day (-0.1% vs -0.7%) and since-reporting (+1.2% vs. -0.6%) 5/10
periods. And while we have seen more "symmetric" beat/miss reactions among small Russell Top 50 Index stocks in bold.
caps, large caps have had to beat EPS consensus merely to tread water. We suspect this is Source: Bloomberg, Wells Fargo Securities, LLC
because larger firms have better mastered the earnings-expectations game.
When Mo' Met Earnings. 1Q24 sales beats/miss reactions appear to be influenced by a
stock's 1yr trailing return (i.e., 12mo Momentum). For the 20 lowest-Mo' stocks (i.e., 1yr
laggards), a soft topline caused only a modest 1-day relative median reaction of -0.9%.
However, these laggards that managed to beat sales consensus saw a solid median
reaction of +3.1% – including RMD (+18%), TECH (+17%), and NEM (+13%) (universe-
wide avg 1-day: -0.7%).
On the other hand, high-Mo' names (i.e., 1-year outperformers) faced a much higher
1Q24 reporting bar. The 20 highest-Mo' stocks that beat consensus sales still saw a
slightly negative 1-day median reaction of -0.4%.
But high-Mo' stocks that missed consensus topline were severely punished, with a median
1-day relative of -5.0%. Stocks that gave back a chunk of their prior annual gains after
reporting disappointing sales included JBL (-16% 1-day relative), SMCI (-14%), ACN
(-10%), and IBM (-8%).
All estimates/forecasts are as of 5/2/2024 unless otherwise stated. 5/3/2024 [Link]T. Please see page 5 for rating definitions, important disclosures and required analyst certifications. Wells
Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect
the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.
Industry Update Equity Research
Market WFS Equity Total Return: Fwd Div.
5/2/2024 Cap ($B) Wgt Strat Rating WTD YTD 1-Year P/E* Yield Largest Market Caps
S&P 500 43,811 100% (0.7)% 6.6% 24.8% 20.6x 1.5% MSFT, AAPL, NVDA
Information Technology 12,564 28.7% neutral (1.5)% 7.0% 39.0% 27.6x 0.8% MSFT, AAPL, NVDA, AVGO
Software & Services 5,002 11.4% overweight (2.0)% 1.7% 30.3% 29.5x 0.8% MSFT, CRM, ADBE, ACN
Hardware & Equipment 3,374 7.7% underweight 1.2% (8.0)% 6.4% 24.0x 0.8% AAPL, CSCO, ANET, APH, MSI
Semiconductors 4,188 9.6% neutral (2.8)% 30.8% 101.5% 29.5x 0.7% NVDA, AVGO, AMD, QCOM
Health Care 5,398 12.3% overweight 0.4% 3.5% 7.0% 19.7x 1.8% LLY, UNH, JNJ, ABBV, MRK
Pharma/Bio/Life Sci 3,192 7.3% 1.8% 5.8% 9.3% 21.0x 2.1% LLY, JNJ, ABBV, MRK, TMO
Equipment & Services 2,206 5.0% (1.6)% 0.3% 3.8% 18.2x 1.3% UNH, ABT, ISRG, SYK, ELV
Financials 5,559 12.7% neutral (0.9)% 8.0% 27.5% 15.2x 1.8% BRK/B, JPM, V, MA, BAC
Diversified Financials 3,148 7.2% (1.5)% 5.2% 22.3% 19.0x 1.2% BRK/B, V, MA, SPGI, AXP, GS
Banks 1,466 3.3% (1.0)% 12.4% 42.1% 11.3x 3.0% JPM, BAC, WFC, C, USB, PNC
Insurance 944 2.2% 1.3% 11.5% 25.8% 13.2x 1.7% PGR, CB, MMC, AON, AJG
Consumer Discretionary 4,698 10.7% neutral 0.9% 2.0% 27.4% 25.0x 0.8% AMZN, TSLA, HD, MCD, LOW
Distribution & Retail 2,748 6.3% 1.4% 13.3% 46.9% 30.0x 0.6% AMZN, HD, LOW, TJX, ORLY
Autos & Components 699 1.6% 5.4% (21.8)% 11.6% 21.9x 0.5% TSLA, GM, F, APTV, BWA
Consumer Services 884 2.0% (3.2)% (1.0)% 7.4% 22.3x 1.3% MCD, BKNG, SBUX, CMG
Durables & Apparel 367 0.8% (0.4)% (7.4)% (1.5)% 16.1x 1.4% NKE, LULU, DHI, LEN, NVR
Industrials 3,853 8.8% underweight (0.6)% 7.4% 24.7% 21.6x 1.6% GE, CAT, UBER, UNP, HON
Capital Goods 2,528 5.8% (0.6)% 9.9% 29.4% 21.6x 1.6% GE, CAT, HON, RTX, ETN, BA
Transportation 726 1.7% (0.8)% 0.7% 11.2% 18.4x 1.8% UBER, UNP, UPS, CSX, FDX
Comm'l/Prof'l Services 598 1.4% (0.5)% 5.7% 22.9% 28.0x 1.6% ADP, WM, CTAS, CPRT, PAYX
Communication Services 4,134 9.4% overweight (1.6)% 15.7% 46.9% 18.9x 0.9% GOOG/L, META, NFLX, DIS
Media & Entertainment 3,654 8.3% (1.7)% 17.0% 52.1% 21.2x 0.4% GOOG/L, META, NFLX, DIS
Telecom Services 480 1.1% (0.6)% 4.9% 10.9% 9.2x 5.6% VZ, T, TMUS
Consumer Staples 2,913 6.6% neutral 0.1% 6.8% 3.0% 20.3x 2.7% PG, COST, WMT, KO, PEP,
Food, Bev, Tobacco 1,283 2.9% 0.3% 3.2% (4.4)% 17.2x 3.6% KO, PEP, PM, MDLZ, MO
Food & Staples Retail 1,014 2.3% (0.9)% 9.6% 19.3% 24.7x 1.4% COST, WMT, TGT, SYY, KR
Household/Personal 616 1.4% 0.7% 10.5% 0.4% 23.3x 2.5% PG, CL, KMB, EL, KVUE, CHD
Energy 1,733 4.0% underweight (3.3)% 11.6% 18.2% 12.3x 3.1% XOM, CVX, COP, SLB, EOG
Utilities* 999 2.3% overweight 2.5% 8.1% 2.9% 7.9x 3.4% NEE, SO, DUK, CEG, SRE
Real Estate* 941 2.1% neutral 0.7% (7.6)% 3.5% 16.4x 3.9% PLD, AMT, EQIX, WELL, SPG
Materials 1,019 2.3% neutral (1.0)% 3.9% 13.4% 21.0x 1.9% LIN, SHW, FCX, ECL, APD
* Bloomberg 's forward price-to-cash flow multiples presented for Utilities and Real Estate.
Source: Bloomberg and Wells Fargo Securities, LLC
2 | Equity Research
Eq Strat: Momentum & Earnings Reactions Equity Research
Bloomberg Market Total Return: Fwd Div.
5/2/2024 Ticker Cap ($T) WTD YTD 1-Year P/E Yield Largest Weightings
EQUITY BENCHMARKS:
S&P 500 SPX $43.8 (0.7)% 6.6% 24.8% 20.6x 1.5% MSFT, AAPL, NVDA
Russell 1000 Large-cap Index RIY $48.3 (0.6)% 6.3% 25.2% 20.6x 1.5% MSFT, AAPL, NVDA
Russell 1000 Value RLV $27.2 (0.6)% 4.7% 15.7% 15.8x 2.4% BRK/B, JPM, XOM, JNJ
Russell 1000 Growth RLG $32.3 (0.7)% 7.7% 34.2% 27.3x 0.8% MSFT, AAPL, NVDA
S&P 400 Midcap Index MID $2.8 0.2% 4.8% 20.1% 16.4x 1.9%
S&P 400 Value MIDV $1.8 0.4% (0.8)% 14.9% 14.0x 2.5%
S&P 400 Growth MIDG $1.9 (0.0)% 10.1% 25.1% 19.5x 1.3%
Russell 2000 Small-cap Index RTY $2.9 0.7% (0.1)% 18.2% 26.3x 2.4%
Russell 2000 Value RUJ $1.8 1.1% (1.1)% 20.2% 20.5x 3.3%
Russell 2000 Growth RUO $1.9 0.3% 0.9% 16.0% 37.4x 1.1%
MSCI FACTOR INDICES: ($B)
Momentum MTUM $9.6 (1.4)% 13.0% 27.6% 36.7x 0.4% NVDA, META, AVGO, LLY
Quality QUAL $41.6 (1.1)% 7.2% 27.8% 27.8x 1.0% NVDA, META, V, MSFT
Minimum Volatility USMV $23.7 (0.4)% 3.8% 12.0% 23.2x 1.8% AVGO, MRK, WM, IBM
Value VLUE $6.9 (1.4)% 0.3% 15.2% 16.4x 2.7% INTC, CSCO, T, GM, IBM
WFS PORTFOLIOS:
SIGNATURE PICKS WFSSBEST 0.6% 10.5% 27.7% 21.8x 1.1% NVDA, AAPL, AMZN, DIS
High-Quality Small Cap WFSSHQSC (0.3)% (3.6)% 14.1% 21.0x 2.3% RMBS, IONS, AXNX, DK
Low-Vol Recessionary WFSSRECE 0.2% 5.3% 10.8% 16.9x 3.0% GILD, GPC, MRK, ADP
Large-Cap Long-Only Hedge WFSSHEDG (0.0)% 7.1% 25.2% 21.1x 1.7% AAPL, MSFT, JNJ
Growth at Any Price WFSSGAAP 0.6% (1.9)% 31.7% 51.7x 0.2% ENPH, SEDG, MPWR
High Covid Beta WFSSCOVD (3.0)% 2.0% 24.0% 11.3x 1.9% FANG, APA, HAL, UNM
High Covid Beta, Low Vol WFSSHILO (1.2)% 5.5% 19.4% 20.6x 1.6% XOM, SNPS, KO, AZO
Growth Portfolio WFSSGROW (0.1)% 1.2% 23.2% 28.9x 0.7% DHR, LIN, MELI, ISRG
Large-Cap Quant WFSSLCQT (2.6)% 7.4% 26.2% 17.9x 1.7% AZO, COP, LRCX, BMY
Small-Cap Quant WFSSSCQT (1.7)% 15.2% 39.8% 19.7x 0.6% ATKR, LSCC, HZNP
China Portfolio WFSSCHIN (1.9)% 14.3% 43.4% 26.0x 0.9% NVDA, AAPL, KLAC
Value Portfolio WFSSVALU (0.7)% 5.1% 22.4% 17.8x 1.9% AAPL, ABBV, UNH, CI
Defensives Portfolio WFSSDEFN (0.1)% 11.5% 19.7% 20.5x 1.6% LLY, AZO, KR, COST
High-Div, High-Credit Rating WFSSDIVA (0.5)% 1.7% 17.6% 11.8x 4.0% R, XOM, UPS, PFG
Source: Bloomberg and Wells Fargo Securities, LLC
Equity Research | 3
Industry Update Equity Research
Last Bloomberg "General" EPS P/E Ratio Y/Y Growth Rates EPS CAGR
Index name Price 2024E 2025E 2026E 2024E 2025E 2026E 2024E 2025E 2026E 2014-24E
S&P 500 5,064 $245 $276 $297 20.7x 18.4x 17.1x 9.7% 12.6% 7.6% 8.1%
S&P 500 Growth 3,261 $123 $141 $153 26.6x 23.1x 21.4x 16.9% 15.0% 8.4% 9.0%
S&P 500 Value 1,761 $110 $122 $130 16.1x 14.5x 13.5x 5.1% 10.9% 7.0% 6.3%
S&P 400 2,901 $184 $212 $237 15.8x 13.7x 12.2x 3.5% 15.0% 12.0% 10.7%
S&P 400 Growth 1,411 $74 $85 $94 19.1x 16.7x 14.9x 5.7% 14.3% 11.6% 10.9%
S&P 400 Value 903 $68 $79 $89 13.2x 11.5x 10.2x 1.4% 15.5% 12.5% 10.1%
S&P 600 1,272 $89 $104 $119 14.3x 12.2x 10.7x 3.4% 17.2% 13.5% 12.4%
S&P 600 Growth 1,033 $65 $74 $83 15.9x 14.0x 12.5x (1.3)% 13.5% 11.9% 13.0%
S&P 600 Value 780 $59 $71 $82 13.3x 11.0x 9.5x 7.7% 20.5% 15.8% 11.7%
S&P 1500 1,148 $57 $64 $69 20.1x 17.8x 16.6x 9.0% 12.9% 7.5% 8.4%
S&P 1500 Growth 12,726 $496 $570 $616 25.7x 22.3x 20.7x 15.1% 14.8% 8.1% 9.8%
S&P 1500 Value 6,336 $402 $448 $481 15.8x 14.1x 13.2x 5.0% 11.5% 7.2% 6.4%
Russell 1000 2,776 $134 $152 $165 20.6x 18.2x 16.8x 9.6% 13.2% 8.2% 8.4%
Russell 1000 Growth 3,278 $120 $137 $150 27.4x 23.9x 21.8x 14.9% 14.7% 9.3% 10.5%
Russell 1000 Value 1,695 $107 $120 $129 15.9x 14.2x 13.2x 6.1% 12.2% 7.6% 5.7%
Russell Midcap 3,206 $179 $206 $227 17.9x 15.6x 14.1x 5.9% 14.9% 10.6% 9.4%
Russell Midcap Growth 1,747 $64 $76 $87 27.2x 23.1x 20.1x 4.6% 17.7% 15.0% 8.7%
Russell Midcap Value 2,761 $176 $201 $220 15.7x 13.7x 12.5x 6.2% 14.3% 9.7% 7.5%
Russell 2000 2,016 $84 $109 $122 24.1x 18.5x 16.6x 12.0% 29.7% 11.9% 11.2%
Russell 2000 Growth 1,294 $35 $50 $62 37.4x 25.9x 20.8x 21.4% 44.3% 24.5% 11.5%
Russell 2000 Value 2,291 $129 $159 $171 17.7x 14.4x 13.4x 8.6% 22.9% 7.2% 10.3%
Russell 3000 2,900 $139 $159 $172 20.8x 18.3x 16.8x 9.7% 13.9% 8.4% 8.5%
Russell 3000 Growth 2,573 $93 $107 $118 27.7x 24.0x 21.8x 15.2% 15.7% 9.9% 10.5%
Russell 3000 Value 2,219 $139 $156 $168 16.0x 14.2x 13.2x 6.2% 12.7% 7.6% 6.0%
Source: Bloomberg and Wells Fargo Securities, LLC
4 | Equity Research
Eq Strat: Momentum & Earnings Reactions Equity Research
Required Disclosures
I, Christopher P. Harvey, certify that:
1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed; and
2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this research report.
Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC’s research
analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm, which includes, but is not limited to investment
banking revenue.
Additional Information Available Upon Request
STOCK RATING
OW=Overweight: Total return on stock expected to be 10%+ over the next 12 months. BUY
EW=Equal Weight: Total return on stock expected to be -10% to +10% over the next 12 months. HOLD
UW=Underweight: Total return on stock expected to lag the Overweight- and Equal Weight-rated stocks within the analyst's coverage universe over the next 12
months. SELL
NR=Not Rated: The rating and price target has been removed due to lack of fundamental basis to support the recommendation or due to legal, regulatory or
company policy considerations.
As of May 2, 2024
49.3% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Overweight.
42.5% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Equal Weight.
8.2% of companies covered by Wells Fargo Securities, LLC Equity Research are rated Underweight.
Wells Fargo Securities, LLC has provided investment banking services for 34.1% of its Equity Research Overweight-rated companies.
Wells Fargo Securities, LLC has provided investment banking services for 35.8% of its Equity Research Equal Weight-rated companies.
Wells Fargo Securities, LLC has provided investment banking services for 31.1% of its Equity Research Underweight-rated companies.
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Equity Research | 5
Industry Update Equity Research
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6 | Equity Research