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About 99% of all S&P 500 companies reported fourth-quarter earnings, and the results are thin.
Companies included in the S&P 500 Index beat analysts’ estimates averaging just 1.3% last quarter. For context, This is well below the 5-year average of the index of 8.6%, according to FactSet data.
What’s happening: There have been several sharp and disappointing profit lapses as corporate America feels the sting of sticky inflation and Federal Reserve rate hikes.
Tech companies have done poorly this season: apple
(AAPL) recorded a rare miss in earnings while Intel
(INTK) and Google’s parent company Alphabet also fell short of expectations.
But not everything was hopeless. Energy companies delivered another quarter of record profits, with major oil companies such as Chevron, ConocoPhillips, Exxon and Shell achieving their most profitable years in history. Elsewhere Tesla
(TSLA) reported record revenue growth and beat earnings expectations. Major retail chains target
(TGT) and Walmart
(TDC) also beat estimates as US consumers continued to spend.
Here’s what else traders need to know about the last few months of last year and beyond.
Corporate profits may fall for the first time since 2020
S&P 500 companies could report a 4.6% drop in earnings compared to last year, according to FactSet. This will mark the first decline in their earnings since the third quarter of 2020, when Covid brought much of the economy to a halt.
There are plenty of gloomy predictions
Nearly 81 S&P 500 companies posted negative earnings-per-share guidance for the first quarter of 2023, according to FactSet. This is much higher than the 23 companies that reported a positive outlook.
There has been no shortage of foreboding predictions from the top P&L managers this season.
Walmart beat last quarter’s estimates, but they also lowered expectations for future earnings.
(HD) CEO Ted Decker said he was concerned that consumers were becoming less resilient to the economy. “We noticed some slowdown in some products and categories, which was more pronounced in the fourth quarter,” he said during a phone call with an analyst.
Meanwhile, Lowe executives have warned that they are gearing up for a “more cautious consumer” this year.
Investors want to celebrate
Wall Street traders seem to be taking this dismal reporting season in stride. The market “rewards positive surprises more than average and penalizes negative results far less than the fourth-quarter average,” according to FactSet.
Inflation (still) matters a lot
More than 325 S&P 500 companies mentioned the term “inflation” in their fourth-quarter earnings reports. This is well above the 10-year average of 157, according to a FactSet document search.
But worries about higher prices appear to be easing, at least a little. This is the lowest number of S&P 500 companies using the word “I” in their calls since the third quarter of 2021. Since the last quarter, the number of references to inflation has decreased by about 20%.
▸ ISM Services PMI – a report that measures the strength of the US services sector – is due at 10:00 am ET. The data is expected to show a slight slowdown in growth between January and February. (54.5 in February vs. 56.5 in January. For context, a reading above 50 means the service economy is expanding).
It’s slowing down it would be a big deal. This will be the signal that the economy is starting to cool and that the Fed’s efforts to fight inflation by raising interest rates are working. However, if service sector growth picks up, it could signal that more aggressive rate hikes are ahead, sending markets down.
▸ Wall Street is looking forward to (or apprehensive, depending on who you ask) next Friday’s unemployment report. The February date is expected to shed light on a shockingly resilient job market.
Another unexpected surge in the number of non-farm payrolls, as 517,000 new jobs added in January may indicate that more Fed rate hikes are ahead. This can stir up markets in a “good news-bad news” environment.
Analysts expect the economy to add 200,000 new jobs last month, according to data from Refinitiv.
▸ Chinese economy surprised investors this week bounces back quickly due to its zero covid outages. China’s first consumer price index, producer price index and trade data for 2023 are scheduled to be released next week, showing the full extent of the country’s economic recovery.
“These numbers will be the first official signs of a reopening of mainland China following the recovery seen in PMI numbers,” analysts at S&P Global wrote in a note.
Global production rose in February for the first time in seven months, according to the latest PMI data compiled by S&P Global. This growth was largely driven by the opening of China.
Shares of Silvergate Capital, a major lender to cryptocurrency firms, fell nearly 60% – a record drop – on Thursday after the company This was announced by the Securities and Exchange Commission. that he would not be able to file his annual return on time, and cited concerns about his ability to stay in business.
Most of Silvergate’s crypto clients, including Coinbase, Paxos, Galaxy Digital and Crypto.com, quickly cut ties with the bank amid the chaos.
So what does it all mean?
My colleague Allison Morrow explains: A California lender posted a $1 billion loss for the fourth quarter as investors panicked over the collapse of FTX, the exchange founded by Sam Bankman-Freed, which is now at the center of a huge Federal fraud investigation.
The FTX crash in November affected the digital asset sector, forcing several firms to cease operations and even file for bankruptcy as liquidity dried up and investors fled.
But unlike FTX, BlockFi, Celsius, Voyager, and other crypto companies that closed last year, Silvergate is a traditional, federally insured lender that bills itself as a gateway to the crypto sector.
This is one of the first major instances of cryptocurrency volatility spilling over into the mainstream banking system, a scenario long feared by regulators and crypto skeptics.