This week, Zacks Equity Strategist Mayur Thaker, CFA discusses:

• The performance of our Earnings Certain (ECP) family of portfolios in comparison to the S&P 500. The underperformance of the ECP portfolios is not surprising given their defensive-oriented approach, but the magnitude of the difference is in large part due to the fact that 2023 was a “reversal year” for the S&P 500 after its -18% drop in 2022 when recession became the consensus (and when the ECP significantly outperformed the index).

• Mayur looks at some of the key reasons for the divergence in performance of the ECP portfolios compared to the S&P 500. He notes that while ECP delivered better earnings growth, the S&P 500 enjoyed significantly higher P/E multiple expansion throughout 2023. Other factors contributing to the S&P’s performance included excitement around Al, rising expectations of a soft economic landing, and the extreme concentration in the S&P 500—with 7 companies making up 30% of the index.

• Looking ahead, Mayur believes the ‘Goldilocks’ conditions that enhanced S&P 500 performance will end. In addition, because ECP companies are recession-resistant, high quality, durable businesses, they will outperform on both a risk-adjusted and absolute basis over the complete market cycle—as they have historically. To sum up, Mayur offers his ideal capital allocation for the year ahead which includes (surprise) the Zacks Earnings Certain Portfolio. Don’t miss this important and illuminating discussion.