The reporting period continues in overdrive with the busiest week of earnings. 164 S&P 500 companies are scheduled to report this week after a similar number last week. Earnings were markedly improved the previous week, as more earnings reports helped offset the drag from some healthcare earnings misses discussed last week. Despite some relief from rising yields and better earnings, the S&P 500 declined by 2.5% for the week. Stocks suffered from concerns about tightening financial conditions and the likelihood that economic growth peaked with the report of rapid U.S. GDP growth in the third quarter.
With the reporting season near the halfway point, blended earnings, which combine actual with estimates of companies yet to report, are above the forecasts at the end of the quarter.
Meta Platforms
FB
AMZN
Sales growth is closely tied to nominal GDP growth, combining after-inflation economic growth (real GDP) with inflation. With nominal GDP growth accelerating to 6.3% year-over-year for the third quarter, topline revenue growth for companies should have some tailwind. Sales growth estimates rose fractionally last week, with seven of eleven sectors improving and remaining above the level at the end of the quarter.
Despite the continued plunge in energy sector profits due to lower oil and gas prices, two of Berkshire Hathaway’s (BRKA, BRKB) largest publicly traded stock holdings are Occidental Petroleum
OXY
CVX
CVX
Blended earnings performance has snapped back and now exceeds expectations at the quarter’s end. Combining actual results with consensus estimates for companies yet to report, the blended earnings growth rate for the quarter is at 2.7% year-over-year, ahead of the expectation of -0.1% at the end of the quarter. If the quarter ends with year-over-year earnings growth, it will snap a three quarter streak of earnings declines.
Outside of earnings season, the first release of third-quarter U.S. GDP showed a robust quarter-over-quarter annualized growth rate of 4.9%, above the 4.5% expected by economists. Economic growth was driven primarily by consumer spending, also known as personal consumption. The considerable growth in inventories, contributing 1.3 percentage points of the growth, indicates a likely slowing economic activity in the fourth quarter. Though the pace of growth should slow in the final quarter of the year, it is unlikely that the economy will come close to any recessionary level in 2023.
In addition to a busy week of earnings, all eyes will be on the monthly jobs report on Friday. Economists expect a slowing of nonfarm job growth to 190 thousand, down from 336 thousand last month. The unemployment rate is expected to hold steady at 3.8%. Job data is crucial for forecasting consumer spending, which feeds into GDP growth and inflation expectations.
Regardless of the reported job growth, the Federal Reserve’s November 1 meeting will almost certainly be another pause with no change to short-term interest rates. Despite no action in November, depending on the future direction of economic data, a hike remains possible in December.
Despite better reports that point to ending the streak of three straight quarters of year-over-year earnings declines for the S&P 500 and robust U.S. GDP growth, stocks found no traction and declined. Even though the 10-year Treasury yield eased to 4.8%, stocks labored under fears of tightening financial conditions and the likelihood that U.S. economic growth peaked in the third quarter. Earnings releases this week come from many closely watched companies, including Apple (AAPL), Starbucks (SBUX), and Berkshire Hathaway (BRK/A, BRK/B). In addition to the busiest week of earnings, all eyes will be on the monthly jobs report on Friday.
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