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Wednesday, October 27, 2021
The supply and energy crisis can still bite
We’re on our knees into the third quarter earnings season, and so far the results mostly defy the implications of idling ships in the Pacific Ocean staked to the brim with cargo they can’t deliver – or an indignant public brandishing digital forks.
Unless your name is Robinhood (HOOD) (a pox on those mercurial retail traders) – but certainly if you’re high-tech tech stocks like Alphabet (GOOG), Microsoft (MSFT), and Facebook (FB) – you are among the lucky group to exceed Q3 expectations by a mile.
In fact, of the more than 140 S&P 500 companies that have posted earnings so far, nearly 82% have beaten Wall Street estimates, according to data from Refinitiv. This is well above the historical average of 66%, notes the firm, even if the ratio of negative to positive pre-announcements (0.8) is well below the long-term average (2.6).
Given the worries that heralded the Q3 reporting season, that’s almost enough to make you ask the question: What crisis in the supply chain?
The struggle to provide goods and services – and to hire enough organizations to do the job – is certainly very big. Retailers and consumers are increasingly worried about the holiday season, especially with inflation emerging – which was enough to cause stocks to explode in September, one of the most volatile months. of this year.
Still, it’s undeniable that companies are doing better than expected, and there are at least a few salient reasons for this. So what is going on?
“The market has rebounded quite significantly, especially given September’s performance in the stock markets,” Gargi Chaudhuri, head of iShares investment strategy at BlackRock, told Yahoo Finance on Tuesday. “What we’re focusing on more recently is … more of that reflationary theme [playing] on the market.”
So are we immune to the inflation and supply chain concerns that were giving investors the fumes just a few weeks ago?
Well, not exactly.
At Deutsche Bank, chief equity strategist Binky Chadha recently analyzed third quarter numbers and found noise in otherwise strong results. Ultimately, the outstanding performance of the big banks was largely attributed to the release of loan loss reserves that Wall Street believed it needed to cushion the blow from COVID-19.
If you exclude these factors, the overall outperformance of S&P 500 companies in the third quarter stands at a relatively low level of 8%, well below current levels above 80%. The median results are even less impressive, reaching 5.2%.
“For now, our team sees earnings on track to stagnate to decline sequentially from -0.2% to -2% [quarter-over-quarter, seasonally adjusted in Q3], marking the first decline since the second quarter of 2020, ”Jim Reid, Deutsche Bank economist, wrote this week.
Meanwhile, keep an eye out for sales growth, which the bank says almost slowed in the third quarter: Deutsche believes margins will decline, driven by rising inflation and ancillary costs. And soaring energy prices, which sparked growing talk of an oil shock and 1970s-style stagflation, shouldn’t improve the outlook either.
“Forward-looking consensus estimates have risen slightly, but mainly due to higher oil prices. Excluding energy, estimates for [the fourth quarter] and 2022 are down slightly, ”said Reid.
All in all, that means the economy – and American businesses – are not yet out of the woods. Keep one eye on third quarter earnings, but the other on forecasts for the fourth quarter and calendar year ahead.
What to watch today
7:00 am ET: MBA Mortgage Applications, week ended October 22 (-6.3% over the previous week)
8:30 a.m. ET: Anticipated merchandise trade balance, September (-88.3 billion dollars expected, -87.6 billion dollars in August)
8:30 a.m. ET: Wholesale inventories, month over month, September preliminary (1.0% expected, 1.2% in August)
8:30 a.m. ET: Durable goods orders, September preliminary (-1.1% expected, 1.8% in August)
8:30 a.m. ET: Durable goods orders, excluding transport, preliminary from September (0.4% expected, 0.3% in August)
8:30 a.m. ET: Orders for non-defense capital goods, excluding aircraft, September preliminary (0.5% expected, 0.6% in August)
8:30 a.m. ET: Orders of non-defense capital goods, excluding aircraft, September preliminary (0.5% expected, 0.8% in August)
6 a.m. ET: Hilton Worldwide Holdings (HLT) Expected to Report Adjusted Earnings of 78 cents a Share on Revenue of $ 1.7 Billion
6:55 a.m. ET: The Coca-Cola Company (KO) Expected to Report Adjusted Earnings of 58 cents a Share on Revenue of $ 9.72 Billion
7:00 am ET: CME Group (CMF) Expected to Report Adjusted Earnings of $ 1.56 per Share on Revenue of $ 1.15 Billion
7:00 am ET: McDonalds (MCD) Expected to Report Adjusted Earnings of $ 2.46 per Share on Revenue of $ 6.03 Billion
7:00 am ET: Bristol-Myers Squibb (BMJ) Expected to Report Adjusted Earnings of $ 1.92 per Share on Revenue of $ 11.55 Billion
7:00 am ET: Kraft Heinz (KHC) Expected to Report Adjusted Earnings of 58 cents a Share on Revenue of $ 6.07 Billion
7:30 a.m. ET: Boeing (BA) Expected to Report Adjusted Losses of 17 cents a Share on $ 16.49 Billion in Revenue
7:30 a.m. ET: General Motors (DG) Expected to Report Adjusted Earnings of $ 1.00 Per Share on Revenue of $ 26.45 Billion
4 p.m. ET: Align technology (ALGN) Expected to Report Adjusted Earnings of $ 2.60 per Share on Revenue of $ 977.67 Million
4:05 p.m. ET: Ford (F) Expected to Report Adjusted Earnings of 27 cents a Share on Revenue of $ 31.56 Billion
4:05 p.m. ET: eBay (EBAY) expected to report adjusted earnings of 89 cents per share on revenue of $ 2.46 billion
4:10 p.m. ET: ServiceNow (NOW) Expected to Report Adjusted Earnings of $ 1.39 per Share on Revenue of $ 1.48 Billion
4:15 p.m. ET: United Rentals (URI) Expected to Report Adjusted Earnings of $ 6.73 per Share on Revenue of $ 2.59 Billion
4:20 p.m. ET: Xilinx (XLNX) Expected to Report Adjusted Earnings of 91 cents per Share on Revenue of $ 891.69 Million
4:30 p.m. ET: O’Reilly Automobile (ORLY) Expected to Report Adjusted Earnings of $ 7.18 per Share on Revenue of $ 3.30 Billion
Before he leaves for Europe tomorrow, President Joe Biden attends the East Asia Virtual Summit focusing on economic and security issues in the Indo-Pacific region for a second day.
On Capitol Hill, Democrats say they are close to finalizing a deal on their social spending program and are hoping for an announcement before Biden leaves on his trip. Also on file: Rohit Chopra, the director of the Consumer Financial Protection Bureau, will testify to his agency at 10 a.m. ET.
Alphabet’s best guess as online advertising remains robust [Yahoo Finance]
Microsoft Surpasses Profit Expectations With Strong Cloud Performance [Yahoo Finance]
Robinhood Revenues Exceed Expectations, Shares Sink [Yahoo Finance]
AMD Third Quarter Profits Surpass Estimates Amid EPYC Processor Momentum [Yahoo Finance]
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