A version of this story originally appeared in CNN Business’ Bell the Bell newsletter. Not a subscriber? You can register here.
There are many concerns possible recession. Is corporate America getting mad too? We’ll get a better understanding this week when several top financial firms and consumer companies report third-quarter earnings.
Asset management giant and iShares owner BlackRock
(BLK) must report on Thursday. JPMorgan Chase
(C) and Morgan Stanley
(Mrs.) These are just a few of the top banks that will announce results on Friday.
Wall Street will also closely monitor earnings from the start of the week dow Walgreens components
(WBA) and UnitedHealth
(DAL) for tips on economics.
“This earnings season will be a good test to see what management teams are saying about future sales and earnings and how much visibility they have,” said Scott Ellis, portfolio manager at Penn Mutual Asset Management.
These blue chips won’t just tell Wall Street how they’ve fared over the past three months. It’s likely they’ll shed some light on what they expect in the crucial fourth quarter, and perhaps take a look at their 2023 outlook.
These concepts may not be very rosy.
“Assuming a recession in 2023, current earnings estimates are likely to be too high,” said Shawn Snyder, head of investment strategy at Citi US Wealth Management. “It could be the next step in the market, but it hasn’t been considered yet.”
Snyder said it’s possible that revenues could fall 10% next year from 2022 levels. But analysts have not yet changed their forecasts dramatically. Wall Street is still predicting earnings growth of about 8% next year, according to FactSet estimates.
Big American companies with significant overseas exposure could also be hurt by the relentless rise of the dollar. A strong dollar will hurt sales and profits for this firm’s international operations.
“The most interesting thing to watch for this earnings season is the strength of the dollar. There’s definitely been an increase, and it’s going to hurt multinationals,” Snyder said, adding that smaller U.S. companies with less international exposure may fare better on the earnings front because they won’t be hurt as much by currency fluctuations.
Companies with a global sales footprint are already starting to feel the pinch. Jeans manufacturer Levi Strauss
(LEVI) It blamed “significant upside currency headwinds from a stronger US dollar” for the weaker-than-expected earnings forecast last week.
Large multinationals also face other headwinds. chip stocksAdvanced Micro Devices, which has already been hit hard this year due to semiconductor supply chain issues, suffered another blow last week.
(OH, MY GOD) warned slowing sales ahead.
“The PC market weakened significantly in the quarter,” AMD Chairman and CEO Lisa Su said in a press release. “Although our product portfolio is very strong, macroeconomic conditions have been lower than expected PC demand.”
Still, there should be some bright spots from this earnings party.
Banks should receive continued support from rising interest rates, which make lending more profitable. And unlike Europe where there are investors worried About the problems at Credit Suisse
(CS) and Deutsche Bank
(WB)Top US firms show no signs of financial stress.
“Bank balance sheets and capital positions remain in solid shape,” KBW analyst David Konrad said in a bank earnings report. Konrad has high ratings at Goldman Sachs
(GS)Bank of America
(BAC) and Wells Fargo.
Banks may benefit from higher interest rates, but most investors (and certainly consumers) hope that inflation will eventually start to cool enough to justify slowing the pace of Federal Reserve rate hikes.
Whether the Fed can begin to consider a pivot will largely depend on incoming inflation data. The US government will release the latest monthly readings on consumer prices and wholesale prices next week.
The consumer price index, or CPI, is one that investors will watch most closely. The CPI rose 8.3% in the last 12 months to August. Economists forecast a slight cooling to 8.1% for September.
Wall Street bets on the producer price index or PPI, will also slow down. Forecasts call for an 8.3% increase in the PPI by September, up from an annual increase of 8.7% in August.
“Inflation numbers are falling. There is no doubt about it,” said Michael Sheldon, chief investment officer of RDM Financial Group. Sheldon noted that there have been big declines in commodity prices recently, such as lumber, steel and copper.
One of the big problems for the Fed is that wages are a large component of the historical inflation picture — and that number is still high, even if wage growth slowed to an annual rate of 5% in September.
“Wage growth is not as low as it needs to be for Fed comfort,” said Luke Tilley, chief economist at Wilmington Trust.
Sheldon said the Fed would like to see wage growth fall to about 3.5% before it feels inflation is truly under control.
It’s also unclear when price increases will actually begin to have a big impact on consumer spending. In August, retail sales increased by 9.1% year-on-year, a sign that buyers are holding their noses and continuing to buy despite sticker shock. The government will report September retail sales numbers on Friday.
Monday: US bond market closed for Columbus Day/Indigenous Peoples Day; The Nobel Prize in Economics has been announced
Tuesday: IMF world economic outlook; Purpose Merge event
Wednesday: US producer price index; Microsoft
(MSFT) Superficial event; Profit from Pepsi
Thursday: US consumer price index; US weekly jobless claims; Earnings from Taiwan Semiconductor
(TSM)Walgreens, Delta, BlackRock and Domino’s
Friday: US Retail; Consumer sentiment from Michigan, USA; China inflation data; Earnings from UnitedHealth, JPMorgan Chase, Wells Fargo, Citigroup, Morgan Stanley, US Bancorp
(USB) and PNC
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