Corporate earnings reports next week could signal an ‘earnings recession’
Investors will focus over the coming week on how much inflation and the slowing economy have eroded corporate earnings, as the likes of Goldman Sachs, Netflix and Procter & Gamble report earnings. Shares were higher over the past week as the market was buoyed by buying early in the new year. By Friday, sentiment had deteriorated following earnings reports from major banks. JPMorgan Chase, which beat estimates, said it was providing more funds to cover loan losses as its base case now is that the US economy enters a “mild recession”. A diverse group of companies are reporting in the four days following the Martin Luther King Jr. Day holiday on Monday. These include JB Hunt Transport, United Airlines, Morgan Stanley, Alcoa and SLB. “This will be the start of an earnings recession,” said Amanda Agati, chief investment officer of PNC Asset Management Group. According to Refinitiv, earnings for S&P 500 companies are expected to fall 2.2% in the fourth quarter, but excluding energy they would be down 6.6%. The latest earnings drop came during the deep pandemic-related slump in 2020. .SPX 1Y line s and p “Revisions were pretty negative early in earnings season, so the bar is pretty low,” Agati said. Even if earnings beat estimates, she still expects a negative quarter. Agati said that for the second straight quarter, Energy Services and Trading & Distribution companies saw the largest positive revisions. The sector includes Grainger, United Rentals and Fastenal, reports on Thursday. Upward revisions could be a sign that supply chains are returning to normal, she added. Analysts expect there could be a few negative quarters depending on how deep the economy enters a recession. PNC expects a recession to start in the second quarter and end in the fourth quarter. Economic recession debate heats up “There hasn’t been a recession without an earnings recession since World War II,” Agati said. Art Hogan, chief markets strategist at B. Riley Financial, said the upcoming earnings week could be an important step in assessing the health of corporate balance sheets. “Is the consensus estimate for the S&P 500 overvalued or about right?” he said. “If that stays intact…there would be some tailwind for this market other than a Fed pause.” Agati expects more CEOs to talk about the recession this quarter. “I would expect that message to be pretty loud throughout the S&P 500 universe,” she said. “I think the market is a bit delusional. There’s a real disconnect where the rubber meets the road between the market and the underlying fundamentals.” Strategists expect the Federal Reserve to pause interest rate hikes in the spring, but futures traders are betting that policymakers will then quickly move to lowering interest rates through year-end. The Fed forecast calls for no rate cuts before 2024. “I think the market is already positioning for the Fed and we don’t know for sure if that will be the case,” Agati said. The central bank has promised to rein in inflation and economists expect it to hike rates by up to half a percentage point on February 1, while the market is expecting a hike of just a quarter point. The consumer price index fell slightly in December, although inflation is still at a high annual rate of 6.5%. Focus on Fed Spokesman Comments from Fed officials could be crucial in the coming week as they will be in a blackout period after Friday before Jan 31st through Feb 31st. 1 meeting. A number of officials have scheduled appearances, including Fed Vice Chair Lael Brainard, who will speak on the economy at the University of Chicago Booth School of Business Thursday at 1:15 p.m. ET. Fed Governor Christopher Waller will be interviewed by CNBC’s Steve Liesman on Friday at 1:00 p.m. ET on the Council on Foreign Relations. There are also some key economic dates on the calendar. Retail sales and producer price index are due out on Wednesday, as is the Fed’s beige book. There are housing starts on Thursday and existing home sales on Friday. The Empire State Manufacturing Survey is released Tuesday and the Philadelphia Fed Manufacturing Survey is released Thursday. Agati said the December retail sales report will be a key gauge of holiday shopping and consumer strength in general. “The consumer has been under tremendous pressure but has held out much longer than we anticipated,” she said. “The consumer is still in better shape compared to this point in previous cycles. The consumer is holding out so far, but has only been able to hold out so much longer. We believe retail sales should be good for now. But I think that will roll over.” Next week’s calendar Monday Martin Luther King Jr. Day Markets closed Tuesday Earnings: Goldman Sachs, Morgan Stanley, Citizens Financial, United Airlines, Interactive Brokers 8:30 Empire State Manufacturing [January] 3:00 pm New York Fed President John Williams Wednesday Earnings: PNC Financial, Charles Schwab, Prologis, Alcoa, Discover Financial, JB Hunt Transport 8:30 am Retail Sales [December] 8:30 a.m. PPI [December] 8:30 am Survey of Business Leaders [January] 9:00 Atlanta Fed President Raphael Bostic 9:15 Manufacturing [December] 9:30 am Fed President James Bullard of St. Louis 10 am Corporate Directories [November] 10:00 a.m. NAHB survey [January] 13:00 Kansas City Fed President Esther George 14:00 Beige Book 15:15 Philadelphia Fed President Patrick Harker 16:00 TIC data [November] 5:00pm Dallas Fed President Lorie Logan Thursday Gains: Netflix, Procter & Gamble, Truist Financial, Key Corp, PPG Industries, Northern Trust, Comerica, Fastenal, Fifth Third 8:30am Initial Jobless Claims 8:30am Construction begins [December] 8:30 Philadelphia Fed production [January] 9:00 Boston Fed Chair Susan Collins 1:15 Fed Vice Chair Lael Brainard 18:35 Williams Friday Earnings of the New York Fed: SLB, Ally Financial, Huntington Bancshares, State Street, Regions Financial, LM Ericsson 9:00 Philadelphia Fed’s Harker 10:00 am Sale of Existing Homes [December] 13:00 Fed Governor Christopher Waller at CFR
https://www.cnbc.com/2023/01/13/corporate-profit-reports-in-the-week-ahead-could-show-earnings-recession.html Corporate earnings reports next week could signal an ‘earnings recession’
