Earnings Are Looking Bad. But What’s Coming Could Be Even Worse
(Bloomberg) — Wall Street is bracing for a rough earnings season as macroeconomic issues weigh on profit margins. But even if third-quarter results aren’t so bad, the bigger fear is what Corporate America sees on the horizon.
Most Read from Bloomberg
Expectations for the reporting cycle, which starts with big banks’ results on Friday, are souring, with a stronger dollar, bloated inventory levels and uncertainty over the Federal Reserve’s rate-hiking cycle cited as the main culprits by analysts at Goldman Sachs and Morgan Stanley. Companies have to navigate through a challenging environment where company-specific issues are exacerbated by tight financial conditions.
Of course some companies will manage to clear an earnings bar that over the past three months has been lowered by the most since the pandemic. But what investors want to hear are executives’ views on future growth. And on that, the news will probably be bad.
In the past six weeks, bellwether firms like FedEx Corp., Ford Motor Co., Nike Inc., Nvidia Corp., Carnival Corp. and Micron Technology Inc. have either reduced their forecasts or provided a muted outlook, triggering a double-digit rout in most cases. Bank of America thinks more could be on the way.
When it comes to last quarter’s results, “who cares?”, BofA strategists including Savita Subramanian wrote in a note to clients. “Guidance is going to be terrible. We expect guidance to weaken even further going forward and more downward revisions across the board.”
READ: Stocks Face Brutal Earnings With Apple in Focus: MLIV Pulse
To Morgan Stanley’s Michael Wilson, a double-whammy of inventory oversupply amid slowing demand creates the main risk this earnings season. The inventory problem is particularly acute for consumer retail and IT hardware sectors, a Morgan Stanley team led by Wilson wrote in a note. That will add further fuel to the ongoing slowdown in earnings growth, the strategists said.
“Things like inventory, labor costs and other latent expenses are wreaking havoc on cash flow,” strategists said. “The market has started to see cracks with some bellwether stocks reporting both top-line and bottom-line misses in recent weeks.”
Strong Dollar Hurts
To strategists at Goldman Sachs, a surging dollar that’s headed for a sixth straight quarterly advance is creating a big headache for companies that derive substantial revenues from overseas. The stronger greenback has historically been linked to fewer sales beats, strategists led by David Kostin wrote in a note, pointing to Levi Strauss & Co., which missed estimates last week partly due to the soaring currency.
Continued dollar strength “would support the performance of stocks with 100% domestic sales relative to those with a higher proportion of foreign sales,” the strategists said. A Goldman basket of stocks that generate 100% of revenues domestically has outperformed one that gets 71% of revenues from foreign sales in nine of the 10 months through September.
Headwinds to margins and tax changes will create additional challenges, Goldman’s strategists wrote. The Inflation Reduction imposes a 15% minimum tax on corporate book income and 1% excise tax on buybacks starting in 2023.
The S&P 500 Index is down 0.7% on Monday following a 2.8% decline on Friday as traders brace for the latest round of earnings announcements. More than 60% of the 724 respondents to the latest MLIV Pulse survey say this earnings season will push the S&P 500 Index even lower. The broad equities benchmark is down 24% this year.
Sanford C. Bernstein strategists Sarah McCarthy and Mark Diver agree, saying there’s further downside to come for US and European stocks, as earnings estimates and investment flows out of equity funds haven’t reached a bottom yet.
“The bear market will not be over until the deteriorating fundamental picture is more fully discounted,” Morgan Stanley’s Wilson wrote in the note. Sentiment will be impacted “when companies throw in the towel” or if there’s an external financial shock.
Most Read from Bloomberg Businessweek
©2022 Bloomberg L.P.
(Bloomberg) — Former Federal Reserve Chair Ben Bernanke, who won the Nobel Prize in Economics on Monday for his research on financial crises, urged policy makers to watch for any worsening of financial conditions around the world as pressures from war and currency fluctuations squeeze economies.Most Read from BloombergHere’s How Weird Things Are Getting in the Housing MarketScreening Procedure Fails to Prevent Colon Cancer Deaths in Large StudyThis Is What 7% Mortgages Will Do to the Housing Ma
Where do millionaires keep their money? High net worth individuals put money into different classifications of financial and real assets, including stocks, mutual funds, retirement accounts and real estate. Most of the 20.27 million millionaires in the U.S. did not … Continue reading → The post Where Do Millionaires Keep Their Money? appeared first on SmartAsset Blog.
U.S. stocks fell on Monday, with the Nasdaq posting its lowest close since July 2020, as investors worried about the impact of higher interest rates and pulled out of chipmakers after the United States announced restrictions aimed at hobbling China’s semiconductor industry. Federal Reserve Vice Chair Lael Brainard said tighter U.S. monetary policy has begun to be felt in an economy that may be slowing faster than expected, but the full brunt of Fed interest rate increases still won’t be apparent for months.
The first quarter of 2022 has been difficult for retirement savers and retirees alike, and according to investment firm Charles Schwab, it was one of the worst quarters for fixed-income in decades. However, the rising yields and changed Federal Reserve … Continue reading → The post Charles Schwab Says Now Is the Time to Add This Asset to Your Retirement Portfolio appeared first on SmartAsset Blog.
RV Capital, an investment management firm, published its “Business Owner Fund” second quarter 2022 investor letter – a copy of which can be seen here. The NAV of the Business Owner Fund was €600.80 as of 30 June 2022. The NAV decreased 40.2% since the start of the year and increased 505.5% since inception on […]
Interest rates are heading up, which will be a big relief to savers who’ve been making nearly nothing on bank accounts. To position your money for the best yield as rates continue to rise consider using the CD ladder strategy. … Continue reading → The post Use This Technique to Take Advantage of Rising Interest Rates appeared first on SmartAsset Blog.
Shares in Chinese tech giants Alibaba Group and Tencent as well as in chipmakers slumped on Monday, as investors were spooked by new U.S. export control measures aimed at slowing Beijing’s technological and military advances. The Biden administration published a sweeping set of export controls on Friday, including a measure to cut China off from certain semiconductors made anywhere in the world with U.S. equipment. The raft of measures, some of which take immediate effect, could amount to the biggest shift in U.S. policy toward exporting technology to China since the 1990s.
Using technical analysis of the charts of those stocks, and, when appropriate, recent actions and grades from TheStreet’s Quant Ratings, we zero in on three names. While we will not be weighing in with fundamental analysis, we hope this piece will give investors interested in stocks on the way down a good starting point to do further homework on the names. Nike Inc. recently was downgraded to Hold with a C+ rating by TheStreet’s Quant Ratings.
Mohamed El-Erian, Allianz’s chief economic adviser, said on Sunday that the U.S. is heading toward a recession that was “totally avoidable” amid ongoing concerns about inflation and economic stability. “I fear that we risk a very high probability of a damaging recession that was totally avoidable,” El-Erian told CBS’ “Face the Nation,” arguing that the Federal Reserve…
Investor’s Business Daily
Apple stock is in a sharp decline as investors evaluate a host of concerns ahead of the consumer electronics giant’s next earnings report.