The markets have gotten off to a flying start this year, making it an unusual time for investors to do what they do best.
Strange, primarily because stocks are gaining (see Tesla up 44% YTD), and yet Corporate America’s perspective could not be more dissimilar to what the stock market is saying right now.
Sure, stocks frequently “climb a wall of worry,” as the old adage goes on Wall Street. And perhaps this is what is happening in January. But, honestly, who is paying attention to economic data (other than inflation) or the ongoing earnings season?
“Yield curve Inversion, contracting M2 and PMIs, soft homebuilder and trucking surveys, and falling leading economic indicators all present a conundrum to [Federal Reserve Chairman] Jay Powell,” Evercore ISI’s Julian Emanuel noted recently.
“While the soft landing vs. recession debate has intensified ahead of the Fed [meeting] on Feb. 1, there is reason to believe that recession is likely in the second half of the year.”
And here are some earnings season data out of FactSet:
- 69% of S&P 500 companies have reported a positive EPS surprise for the fourth quarter, which is below the five-year average of 77%.
- S&P 500 companies are beating EPS estimates for the fourth quarter by 1.5% in the aggregate, which is below the five-year average of 8.6%.
- The blended earnings decline for the fourth quarter for the S&P 500 is -5.0%. If -5.0% is the actual decline for the quarter, it will mark the first year-on-year drop reported by the index since the third quarter of 2020.
Miserable reading on Corporate America’s health. Guidance has been generally poor as well: just look at the meager forecasts issued by 3M and Sherwin-Williams last week.
During our conversation last Friday, Intel CEO Pat Gelsinger expressed concern about the economy. In our conversation, American Express CEO Stephen Squeri was more upbeat, but the credit card giant didn’t have a perfect quarter due to economic downturns.
Furthermore, we’re seeing evidence of layoffs spreading outside of technology.
According to the layoffs tracking website Layoffs.fyi, approximately 219 companies have laid off over 68,000 tech employees this month.
That’s 68,000 people who may contribute less to economic growth in the coming months. Then, there are companies like Newell Rubbermaid, which is laying off 13% of its office workers.
Now, the market is waiting to see if Apple, which reports earnings later this week, will join rivals Microsoft and Amazon in cutting as iPhone demand appears to be slowing.
But who knows, Apple’s cuts might just fuel the current market. For investors, this is a strange time. We’ll see what February has in store.