Maximum attention on Wall Street where, this week, the quarterly earnings season officially begins: to open it will be the banking giants of the caliber of JPMorgan, Wells Fargo, Morgan Stanley e Citi (earnings will be disclosed in the session on Friday, October 14).
They will follow next week companies such as PepsiCo and Delta.
The Financial Times wrote in an article that the consensus of analysts, according to data from FactSet, predicts an increase in the profits of companies listed on the S&P 500, on average, equal to + 2.6% on an annual basis.
This is a sharp slowdown compared to the 9.8% previously forecast which, if confirmed, would represent for Corporate America the weakest quarter since the Covid lockdownor from the quarter between July and September 2020.
The giants of Wall Street – reads the FT article – have practically scissored its own estimates of roughly $ 34 billion.
AMD, even before FedEx: the first profit warnings arrive
While earnings previews are being churned out, profit warnings already launched by some Corporate America giants anticipate a depressing pictureat a time when fear of a hard landing recession is paired with the nightmare of inflation.
For American companies making overseas profits, there is also the problem of the Super dollar, which results in an erosion of repatriated earnings.
The stocks of some big names in the S&P 500 index have already discounted, in recent days, the profit warnings pitted by the relative giants: last Friday, the nightmare session on Wall Street, fomented by the publication of the US employment report in particular, the collapse of AMD-Advanced Micro Devices’ quotations was the protagonist, which raised an alarm on turnover, announcing that for the third quarter a turnover of more than 1 billion dollars lower than initially estimated .
The AMD stock dropped by almost -14%.
“The PC market weakened significantly during the quarter – explained the president and CEO of AMD, Lisa Su – While our product portfolio remains very strong, macroeconomic conditions have weighed down the demand for PC, causing a significant inventory correction in the PC supply chain “.
Three weeks ago already the US giant of international shipping FedEx had seen the stock fall by more than -21%, due to the alarm raised on the turnover, expected to be 500 million dollars below the previously set target.
“Global volumes fell, as macroeconomic data deteriorated significantly towards the end of the quarter, both internationally and in the United States “, FedEx CEO warned three weeks ago Raj Subramaniamcommunicating FedEx’s intention to “Aggressively accelerate efforts to reduce costs”.
“This earnings season will be a useful test case to see what the top management will say, and to understand how much visibility there is regarding future sales and profits “, commented on CNN Scott Ellis, portfolio manager presso Penn Mutual Asset Management.
Corporate USA: the plagues of the Super Dollar and inflation
Among other things, the big US big companies will not only present the results for the third quarter of the year, but will also shed light on what they expect for the fourth quarter and maybe even for 2023.
“E, assuming there will be a recession in 2023current earnings estimates are probably too high ”,. commented Shawn Snyder, head of investment strategy at Citi US Wealth Management, who believes a slide in earnings next year is possible. equal to -10% on an annual basis.
The consensus, however, has not yet feared such a scenario, far from it. According to FactSet estimates, Wall Street predicts a growth in profits, in 2023, equal to + 8%. Which means that a big disappointment it could wait for the markets to pass.
Then there is the question of the Super dollar: “The most interesting thing to look forward to in this earnings season is the strength of the dollar, that will hit the multinationals “Snyder continued, adding that US companies with lower exposure to foreign markets could report a better earnings trend, as they are exempt from the impact of exchange rate fluctuations.
But the Super Dollar, while a concrete threat, does not occupy the top spot on analysts’ list of concerns. Inflation is the cruelest tax which erodes both the purchasing power of consumers and the margins of companies, the factor destined to weigh the profitability of Corporate America most of all. This is what emerges at least from a survey launched by FactSet:
“Labor costs were cited by most of the companies listed on the S&P 500 as the factor that either has had a negative impact on earnings, turnover, profit margins in the third quarter, or as the factor that is expected to have an impact on earnings, turnover, profit margins, in subsequent quarters ” .
In all 65% cited the negative impact of this factor (inflation).
Earnings season, banks: white fly in a bleak landscape?
Pessimism about Corporate America’s earnings trend it is quite widespread.
Interviewed by Bloomberg Peter Garnry, head of Saxo Bank’s equity strategy, said to believe that “Third quarter earnings will disappoint, with clear downside risks on analysts’ estimates for the fourth quarter.”
Garnry added that “the key risk factors for third quarter earnings” are, in his view, the surge in costs, which is obviously affecting the propensity to consume, therefore. “The demand for consumer products, compared to salary higher that are eroding corporate profits ”.
In short, the problem is always the same: inflation.
However, there is a sector that could benefit from cCurrent honesty of rate hikes: that of banks, whose profitability has undoubtedly received a boost from the increase in the cost of money.
“Bank balance sheets and capital numbers both remain in solid health “, commented David Konrad, an analyst at KBW, in a preview dedicated to the banking sector. However, it should be noted that the scenario that stands out on the horizon, that of a recession, it does not bode well for banks either, which could see a marked contraction in requests for loans from private individuals, given the need for them to keep their respective portfolios tight.
In any case, Konrad is bullish isu Goldman Sachs (GS), Bank of America (BAC) e Wells Fargo.
Confidence in the results of the banks was expressed also by IG Italia analystswho rattled off forecasts on the results of individual American banks, underlining that, in their opinion, “The stars and stripes banks could record results above expectations despite the decline in M&A activity”.
“The trading and retail banking divisions – comment from IG Italia – they can contribute to the resilience of results “.
The note mentions that the quarterly season in the United States “It will see Wall Street banking giants as a forerunner including JP Morgan Chase, Morgan Stanley, Citigroup (all three scheduled for October 14) while Goldman Sachs will release its data on October 18.”
“The consensus estimates are optimistic even if the forecasts are lower than the results of a year ago. The reason is soon to be said. The slowdown in the macroeconomic scenario has put large companies on hold from carrying out extraordinary finance operations (mainly as regards the side of mergers and acquisitions). As a result, the big Wall Street banks, where Investment Banking activities account for a large chunk of revenues, found themselves with a gradually shrinking market. Furthermore, the decline in activity was noticed much more due to the record frenzy in this sector throughout 2021. In particular, the boom in SPACs (Special Purpose Acquisition Companies) and the exponential increase in M&A had allowed bankers to reap huge profits in the period of partial post-pandemic economic recovery ”.
However, still write from IG Italia, “The increase in hiring, implemented to keep up with the growing number of transactions, is now backfire on the same banks that have found themselves with a oversized staff compared to real needs and have in fact announced major plans for staff cuts. That said, large US banking groups are highly diversified, which can benefit them even in times of slowdown in economic activity. The trading divisions are almost constant in bringing home good earnings, especially in times of high volatility like the one we are experiencing now, while those related to retail banking will benefit from the general increase in interest rates by the Federal Reserve which will allow him to increase his interest margin (the difference between what the bank pays for deposits and what it receives from loans). In fact, the US central bank has repeatedly repeated its firm belief in aggressively raising the level of interest rates – currently in the range of 3% – 3.25% – in order to calm the growing inflationary pressures that have hit the United States. maximum from 40 years (at + 8.3% yoy in August). For the Board of Directors of the Fed – it is reiterated – the primary objective remains in fact price stability even at the expense of a slowdown in economic growth and the labor market ”.
Below, IG Italia presents the estimates on the financial results that will be disclosed by the giants of Wall Street in the next few days, based on the estimates of the consensus:
- JP Morgan: Revenue of $ 31.99 billion and EPS of $ 2.88.
- Morgan Stanley: Revenue of $ 13.23 billion and EPS of $ 1.51.
- Citigroup: $ 18.23 billion and EPS of $ 1.55.
- Goldman Sachs: $ 11.53 billion and EPS of $ 7.60.
“To conclude – reads the comment – we therefore remain optimistic that the results of these investment banks may surprise the consensus estimates e show an acceleration in revenues and earnings per share despite the challenging macroeconomic environment and the loss of a major source of earnings by the Investment Banking divisions ”.