US Corporate Earnings Fall Short of Previous Years... Apple and Others Mark This Week's Super Week

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Leading companies representing the U.S. New York Stock Exchange, such as Apple and Amazon, are set to release a large number of quarterly earnings reports this week (24th-28th). Amid rising economic uncertainties including high inflation, monetary tightening, ongoing supply chain disruptions, and a strong dollar, investors are closely watching what kind of earnings and forecasts these companies will present. However, among the companies that disclosed their results early, fewer have exceeded Wall Street expectations compared to previous years, and most have confirmed pressure from macroeconomic uncertainties, intensifying concerns about future outlooks.

◆ One-third of S&P 500 companies to disclose earnings in 'Super Week'... Focus on economic outlook

According to financial information firm FactSet on the 23rd (local time), 161 companies, accounting for one-third of the S&P 500, will release their third-quarter earnings this week. Major companies include many big tech firms such as Apple, Microsoft (MS), Alphabet (Google's parent company), Amazon, and Meta Platforms (Facebook's parent company). Travel-related companies like Southwest Airlines, JetBlue Airways, and Hilton, as well as energy companies such as Chevron and ExxonMobil, will also sequentially report earnings. Among the Dow Jones Industrial Average's 30 large companies, 12, including Boeing and McDonald's, are on the list.

During this so-called 'earnings week,' when major companies' results pour in, investors are expected to closely examine how these companies are coping with inflation, supply chain disruptions, and the strong dollar. Attention is focused not only on the earnings themselves but also on annual guidance and future outlooks provided by these companies.

Investors are likely to analyze earnings from Coca-Cola, Kraft Heinz, and others to understand how high prices and companies' pricing decisions are affecting consumer spending patterns. Credit card companies Visa and Mastercard's earnings announcements are considered key indicators to verify whether inflation has impacted consumers' purchasing power. Ahead of the shopping peak season, logistics company UPS's earnings will also attract attention. Earlier, competitor FedEx significantly lowered its earnings forecast, warned of a possible recession, and disclosed plans for rate hikes.

The Wall Street Journal (WSJ) described these companies as "good indicators of how consumers are responding to high prices," noting that investors can find implications for the future economic outlook through this week's earnings week.

◆ Earnings reports fall short of previous years... "Investors remain worried so far"

So far, third-quarter earnings reports released ahead of the Super Week have not provided much comfort to investors. WSJ, citing FactSet, reported that about 20% of companies included in the S&P 500 have announced third-quarter earnings, with 72% of them exceeding expert earnings forecasts. This is below the five-year average of 77%.

Companies whose earnings fell short of market expectations have recently suffered from a widespread decline in stock prices. The stock prices of S&P 500 companies that missed earnings forecasts dropped an average of 4.7% over two days following their earnings announcements, far exceeding the five-year average decline of 2.2%. Many companies that beat expectations also experienced stock price declines due to gloomy future outlooks. Jim Goldman, Chief Investment Officer at Cetera Investment Management, said, "As the earnings season began, the bar was set very low. We expected an easy flow, but the earnings reports we are observing have not been very good," reflecting the mood.

In particular, WSJ reported in a separate article that third-quarter earnings reports confirm that major companies' profits are already under pressure from macroeconomic factors. According to Refinitiv, quarterly earnings excluding the energy sector are expected to decline by 3.5% year-over-year. Sam Stovall, Chief Market Strategist at CFRA, expressed concern, saying, "As of the end of June, the earnings per share (EPS) growth forecast for S&P 500 companies was 10%, but by the end of September it was 3%, and now it has continued to fall to 2%." Larry Adam, Chief Investment Officer at Raymond James, commented, "Once the earnings season starts, everything is about the macroeconomy."

Moreover, investors facing the earnings Super Week are also paying attention to the pace of interest rate hikes ahead of the Federal Reserve's monetary policy decision on November 1-2. After WSJ reported that the Fed might discuss reducing the rate hike to 0.5 percentage points starting in December at the next meeting, expectations for a slowdown have spread in the market. This was the background for the rally in the New York Stock Exchange last Friday.

Additionally, the U.S. economy, which recorded negative growth for two consecutive quarters, is expected to rebound in the third quarter. According to the Atlanta Federal Reserve Bank's 'GDP Now,' the U.S. third-quarter gross domestic product (GDP) forecast is estimated at 2.9%. However, the Washington Post (WP) pointed out that although the figures may appear improved, persistent inflation continues to impose a heavy burden on both economic growth and households. The possibility of a recession next year remains high. Douglas Holtz-Eakin, chairman of the American Action Forum and former director of the Congressional Budget Office, stated, "It looks better than the previous two quarters' GDP reports, but the situation has not changed much," adding, "The cost of inflation and concerns about Fed tightening remain."

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