Market Update 10/4 – New set of Earning Seasons Ahead

Our earnings season is already underway after the Easter Holiday. During the next few weeks, companies are going to be reporting on how they have fared financially during the first quarter of the year (January 1 through March 31).

The first eye-catching industry on the Q1 2023 earning train is banks.

Following the shock of the news that one of the largest start-up friendly banks in the US had fallen, the Silicon Valley Bank, the world was left in a state of shock. Followed by Signature Banks. Marks the two biggest bank failures since the 2008 financial crisis.

In what ways will this scenario affect the rest of the banks' earnings for the first quarter of 2023?

Regional bank earnings and guidance from big bank CEOs will get a lot of attention, as the financial markets are still dealing with the aftermath of a banking crisis. But what’s going on with other industries could be as exciting.

According to FactSet, it is projected that the profits for the first quarter of this year will fall by 6.8% compared to the same quarter last year. In other words, that would be the steepest decline in earnings since the second quarter of 2020, when the onset of the Covid-19 pandemic resulted in a 32% decline in profits.

The Banks that will be reporting their earnings this Friday, April 14 2023 are BlackRock, Inc. (BLK), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), The PNC Financial Services Group, Inc. (PNC), UnitedHealth Group Incorporated (UNH), and Wells Fargo & Company (WFC).

The list of Banks Earnings continue with The Charles Schwab Corporation (SCHW), State Street Corporation (STT) and more on Monday April 17, 2023 and Bank of America Corporation (BAc), Netflix (NFLX), Goldman Sachs Group, Inc. (GS) and more on Tuesday April 18, 2023.

It is expected that many market participants will be watching bank executives in order to determine whether they will signal plans to rein in lending. This could have implications for industry growth and affect the Federal Reserve’s interest rate policy. Investors will also parse the latest consumer- and producer-price reports for a read on whether inflation is easing, which is likely to influence the pace of the Federal Reserve’s campaign to raise interest rates.

Throughout the past few months, companies have faced a host of challenges from inflation, rising interest rates, the price of commodities, and many others. Yet U.S. stocks have risen this year, with the S&P 500 up 6.9%.

In spite of the rocky financial situation of financial institutions and the continued staff layoffs of tech companies, the stock market remains positive for another sector of the economy. “What one man loses, another man gains.”. When the market gets rough, investors tend to start looking for defensive stocks such as healthcare and consumer staples.

The earnings estimates for the latter half of 2023 remain relatively optimistic, so there is a possibility of further revisions on Wall Street as a result of this, according to some investors. It is predicted that earnings will grow by 1.2% for the year as a whole.

Unemployment Rate

A monthly jobs report released last Friday, April 7, showed that the US added 236,000 jobs in March as a result of the weak labor market. Taking a look at the non-farm payroll data published by the Bureau of Labor Statistics (BLS) is indicative of a slowdown in the employment market in the world’s largest economy last month, following the upwardly revised additional of 326,000 jobs in February and 504,000 jobs in January. In addition, economists expected 239,000 jobs in March, but the number was short by 3,000.

It increases investors’ expectations that the Federal Reserve will raise rates at its May meeting as the effects of the Fed’s interest rate increases begin to be felt in the economy.

Taking last year’s corporate earnings into account, we’re already in a recession. With the weakening economy and financial condition, how will this number change?

The upcoming banking earnings will briefly tell us a lot about how loose or tight financial conditions are.

Bottom Line

Investors are watching this next round of earnings reports for insight into how much further corporate profits may fall and whether that makes stocks look pricey relative to their value, despite Wall Street trimming its earnings expectations.

References:

https://www.nasdaq.com/market-activity/earnings

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