Five Things to Watch in What Will Be an Ugly Earnings Season

Bloomberg2023-04-17

Impact of banking stress will be key as companies reportInvestors will monitor margins, spending and costs this seasonAs companies prepare to report the biggest drop in earnings since the pandemic ...

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Upswing118
2023-04-17
Upswing118
Away w sceptics....Time to shine ✨️ everyone/stock!
DQuek
2023-04-17
DQuek
Economy are heading bear again?

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Investors who have bid up the S&P 500 by 8.0% this year are counting on a mild recession at best and an end to the Federal Reserve’s interest rate increases. A lot of things need to go right for that happen, including no replay of the banking system turmoil from March and a resilient consumer in the face of persistent inflation and slowing growth.“If macro data slows but does not plummet, and if banks show stability in their balance sheets, the markets could rally on hopes that first-quarter earnings growth rates marked the low of the cycle,” said Madison Faller, global strategist at JPMorgan Private Bank.Skeptics say earnings estimates are still too high, and predict the market will drop as investors come to that realization. “The equity rally could continue, but that’s not my base case,” said Rajeev De Mello, a global macro portfolio manager at GAMA Asset Management SA. “The outlook will be cautious. There is a lot of uncertainty about the state of the economic cycle” he said, and stress in the banking system served as a reminder of the effects of monetary tightening.With Wall Street banks including JPMorgan Chase & Co. and Citigroup Inc. having just kicked things off, here are five key areas that market participants will be watching this earnings season:Banking StressThe collapse of several US regional banks last month will be at the top of investors’ minds. Money managers will assess companies’ exposure to these firms while weighing the impact of tightening credit conditions on profits.The earnings of smaller US companies are more likely to be affected by the stress in the banking system than larger firms, given they’re more economically sensitive and have more exposure to regional lenders, Goldman Sachs Group Inc. strategists wrote in a note.Brokerage firm BGC Partners Inc. said revenue was “slightly impacted by the recent turmoil across regional banks and certain global investment banks,” resulting in lower volumes in the last weeks of the quarter. Sales vs MarginsCompanies are being forced to reduce prices to entice consumers to spend while the economy slows, and that’s raising concerns about profit margins. Tesla Inc. has been slashing car prices globally, a strategy that helped it deliver a record number of cars in the first three months of the year even as analysts question the effect on profitability.Discounts were also a feature in the retail sector. Levi Strauss & Co.’s first-quarter gross margin fell short of expectations due to increased promotions. And while Nike Inc.’s sales beat expectations, its profitability missed estimates amid markdowns and high freight and material costs.  Sales Outlook Solid While Margins Expected to Deteriorate“There will be more earnings pain because margins can fall further as they’re only just starting to drop from a peak,” said Karim Chedid, an investment strategist at BlackRock Inc. in London. “Margins are going to be key as we gauge how quickly inflation recedes from the peak and how tight the labor market still is as we pass peak jobs. That will be a big determinant of the market environment and the assessment of risk assets.”Corporate SpendingInvestors will be scrutinizing how firms decide to use cash. Dividends and buybacks could be rewarded but companies might choose prudence, especially as concerns about the financial sector linger.Bank stress puts the outlook for US corporate spending under pressure even though it was already deteriorating prior to March’s events, according to Goldman strategists. Analyst estimates show slowing buybacks but continued capital expenditure growth in every S&P 500 sector in 2023, the bank’s data show.Still, there are some signs shareholder returns will stay resilient. In Europe, the European Central Bank approved UniCredit SpA’s €3.34 billion ($3.7 billion) share buyback, a sign that regulators aren’t yet inclined to curb banks’ payout policies because of the turbulence. In the US, FedEx Corp.’s board approved an increase in the annual dividend for fiscal 2024.Cost CuttingThe tech sector has led a massive wave of layoffs after hiring aggressively in the pandemic. Companies will be expected to prove how their measures have paid off in the first quarter. Amazon.com Inc., Logitech International SA and Meta Platforms Inc. were among those that cut jobs.The phenomenon has also spread beyond technology. McDonald’s Corp., Walt Disney Co., Walmart Inc. have slashed their payrolls amid mounting risk of a recession and elevated costs. Firms have also been shutting offices and rethinking their strategies to save cash.Estimates for S&P 500 profits in the coming year have moved higher over the past month, “suggesting analysts are expecting cost cutting will begin to work its way through,” said Peter Garnry, head of equity strategy at Saxo Bank AS. “That leaves room for downside risks should companies disappoint on their outlooks.”China BoostChina’s reopening has been uneven and is affecting sectors differently. Chemicals, mining and energy companies are among those waiting for a boost. Saudi Basic Industries Corp., the world’s biggest chemical maker, warned at the end of February that margins would remain tight with the Chinese market yet to recover.It’s in the European luxury industry that investors have high expectations and companies are already delivering. Prada SpA said it had an “excellent” Chinese New Year, Richemont said the return of Chinese tourism is helping boost luxury spending and LVMH as well as Hermes International’s sales jumped in the first quarter as Chinese shoppers bounced back.Within the sector, “I would expect strong earnings given the wealthy consumer is still doing very well and China’s reopening,” said Paul de la Baume, senior market strategist at FlowBank SA.","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9944188010,"gmtCreate":1681743872530,"gmtModify":1681745444817,"author":{"id":"4087685930931350","authorId":"4087685930931350","name":"Upswing118","avatar":"https://static.tigerbbs.com/5ee810deeb4fd3c3d863b49cef1d9956","vip":1,"crmLevel":5,"crmLevelSwitch":1,"idStr":"4087685930931350","authorIdStr":"4087685930931350"},"htmlText":"Away w sceptics....Time to shine ✨️ everyone/stock!","listText":"Away w sceptics....Time to shine ✨️ everyone/stock!","text":"Away w sceptics....Time to shine ✨️ everyone/stock!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":11,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9944188010","repostId":2327436598,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9944112816,"gmtCreate":1681741806235,"gmtModify":1681741812033,"author":{"id":"3579899712012688","authorId":"3579899712012688","name":"DQuek","avatar":"https://static.tigerbbs.com/0041a6750d53c4d39f0f9251bea439d3","vip":1,"crmLevel":5,"crmLevelSwitch":1,"idStr":"3579899712012688","authorIdStr":"3579899712012688"},"htmlText":"Economy are heading bear again?","listText":"Economy are heading bear again?","text":"Economy are heading bear again?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":10,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9944112816","repostId":2327436598,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":89,"commentSize":2,"repostSize":3,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.30.0","shortVersion":"4.30.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2327436598"}