Earnings season reveals the mood of corporate America

Earnings reports are something of a report card for corporate America, and they can tell us a lot about what the economy is doing and what it’s expected to do. Alphabet reported disappointing earnings on Tuesday: revenue growth slowed, much less, from 41% last year to just 6% this year. Elsewhere, payroll processor ADP reported higher earnings on Wednesday that surprised investors.

So far this earnings season, most S&P 500 companies that have reported have beaten earnings expectations.

“I think the mood in the reports has been generally positive,” said Alex Zukin, CEO of Wolfe Research. “It’s the prospect that makes people a little hesitant.”

Outlook is the part of the earnings report where companies tell you what they think will happen in the future. Microsoft, for example, suggested slowing demand for some of its products, Zukin said. Some other red flags Zukin saw are companies suddenly focusing on cutting costs.

Also Read :  Biden arrives in Cambodia looking to counter China's growing influence in Southeast Asia

“How do we make sure that every dollar we spend is spent the right way?” he said “Both of those things are generally an ominous sign for the demand environment going forward.”

And there is a clear difference between companies that have a negative outlook or poor earnings and those that do not.

“It depends on who you’re selling to,” said Michael Walker, an analyst at asset management firm AllianceBernstein. “If you’re selling to consumers or dealing with consumers and individuals, you’re doing well so far and the outlook is actually pretty good for next year.”

Also Read :  US Outlines Increased Sanctions on Foreign Parties Continuing To Transact With Russia Sanctions Targets | Perkins Coie

The labor market is in good shape, so it’s no surprise that payroll processor ADP is beating earnings.

“On the other hand, if you sell to businesses, you start to see a decline,” Walker said.

Google, Microsoft, and Texas Instruments had forecasts that disappointed, and all three companies sell to businesses. It’s businesses that are starting to feel the sting of rising interest rates: rising rates make borrowing more difficult and lower share prices.

“It goes in waves,” said Joel Prakken, chief U.S. economist at S&P Global Market Intelligence. “We have seen, for example, that the housing sector is the first sector to respond by hiring.”

Also Read :  Netflix Witcher Season 4 Replaces Henry Cavill With Liam Hemsworth

Next, he says, business spending on equipment will fall.

“Somewhere in the mix, you’re going to see a decline in spending on consumer durables,” he said.

And all of that will start showing up in earnings reports as time goes on.

Many things are happening in the world. All in all, Marketplace is here for you.

Trust Marketplace to break down world events and explain how they affect you in an accessible, fact-based way. We rely on your financial support to continue making this possible.

Your donation today powers the independent journalism you trust. For just $5/month, you can help keep Marketplace going so we can keep reporting on the things you care about.

Source

Leave a Reply

Your email address will not be published.

Related Articles

Back to top button