{"id":28666,"date":"2023-10-22T11:56:24","date_gmt":"2023-10-22T11:56:24","guid":{"rendered":"https:\/\/isafespend.com\/personal-finance\/wealth\/earnings-soften-and-yields-bite-stocks\/"},"modified":"2023-10-22T11:56:25","modified_gmt":"2023-10-22T11:56:25","slug":"earnings-soften-and-yields-bite-stocks","status":"publish","type":"post","link":"https:\/\/isafespend.com\/?p=28666","title":{"rendered":"Earnings Soften And Yields Bite Stocks"},"content":{"rendered":"
\n

The reporting period kicks into overdrive this week with the busiest week of the earnings season. 162 S&P 500 companies are scheduled to report this week after 55 last week. Earnings were disappointing this week, but the real story was the continued march higher of the 10-year Treasury yield. Under the weight of yields rising to 4.9%, the S&P 500 tumbled by 2.4% for the week. A detailed preview of the earnings season is available here.<\/p>\n

While the reporting season is still young, blended earnings, which combine actual with estimates of companies yet to report, have fallen below the forecasts at the end of the quarter. The communications services sector is expected to have the most robust year-over-year earnings growth at 32.1%. Meta Platforms
\n FB
\n <\/fbs-ticker> (META) is expected to be the most significant contributor to the increase, as the company faces easy comparisons and better earnings when it reports this week.<\/p>\n

The healthcare sector was the main culprit for the reversal of fortunes for earnings last week. According to FactSet, Pfizer
\n PFE
\n <\/fbs-ticker> (PFE) and Eli Lilly (LLY) saw third-quarter earnings estimates slashed after guidance from the companies. Despite improvement in earnings for financials, banks underperformed last week. Some mixed earnings reports combined with worries that the relentless rise in bond yields will dent the bank\u2019s bond portfolios sent banks almost 4% lower.<\/p>\n

<\/fbs-ad><\/p>\n

Sales growth is closely tied to nominal GDP growth, combining after-inflation economic growth (real GDP) with inflation. With nominal GDP growth accelerating year-over-year for the third quarter, topline revenue growth for companies should have some tailwind. Sales growth estimates declined fractionally last week but remain above the level at the end of the quarter.<\/p>\n

Despite the continued plunge in energy sector profits due to lower oil and gas prices, two of Berkshire Hathaway\u2019s (BRKA, BRKB) largest publicly traded stock holdings are Occidental Petroleum
\n OXY
\n <\/fbs-ticker> (OXY) and Chevron
\n CVX
\n <\/fbs-ticker> (CVX
\n CVX
\n <\/fbs-ticker>). According to filings, Berkshire last bought Occidental shares in June and now owns more than 25% of the company. A previous piece discussed why Warren Buffett\u2019s Berkshire Hathaway probably favors Occidental Petroleum. Berkshire should report earnings on Saturday, November 4.<\/p>\n

Blended earnings performance is underperforming expectations at the end of the quarter. Combining actual results with consensus estimates for companies yet to report, the blended earnings growth rate for the quarter is at -0.4% year-over-year, ahead of the expectation of -0.1% at the end of the quarter. If the quarter ends with another year-over-year earnings decline, it will make it an earnings recession for four quarters in a row.<\/p>\n

Outside of earnings season, the first release of third-quarter U.S. GDP will come on Thursday morning. Economic activity should have been robust in the quarter, with the Atlanta Fed\u2019s estimate currently at a whopping 5.4%. Consensus estimates of quarter-over-quarter annualized GDP are 4.3%, which is well above-trend growth.<\/p>\n

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. Based on recent comments from Federal Reserve officials, the November 1 meeting will almost certainly be another pause with no change to short-term interest rates. Despite no action next month, depending on data, a hike remains possible in December.<\/p>\n

Aside from the healthcare sector, earnings weren\u2019t the problem for stocks last week. In fact, seven out of the eleven sectors saw earnings estimates improve in the previous week. The proximate cause of the stock market woes is the continued pressure from higher bond yields stoked by the brisk economic growth noted previously. Nominal and, more importantly, real after-inflation, yields have returned to levels not seen since before the Global Financial Crisis. As Warren Buffett explained during Berkshire Hathaway\u2019s 2013 annual meeting, \u201cYou know it\u2014 interest rates are to asset prices, you know, sort of like gravity is to the apple. And when there are very low interest rates, there\u2019s a very small gravitational pull on asset prices.\u201d As yields have rebounded from the historic pandemic lows, stocks have felt the pressure.<\/p>\n

While headline earnings for the S&P 500 turned lower, the details remain supportive. After three straight quarters of year-over-year earnings declines for the S&P 500, the third-quarter earnings season should still snap that losing streak despite last week\u2019s setback. In the season\u2019s busiest week, some bellwether technology companies like Alphabet (GOOGL) and Microsoft (MSFT) could set the tone. Bond yields will also impact stocks as they have become a potent competitor.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The reporting period kicks into overdrive this week with the busiest week of the earnings season. 162 S&P 500 companies are scheduled to report this week after 55 last week. Earnings were disappointing this week, but the real story was the continued march higher of the 10-year Treasury yield. Under the weight of yields rising<\/p>\n","protected":false},"author":1,"featured_media":28667,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[57],"tags":[],"class_list":{"0":"post-28666","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-wealth"},"yoast_head":"\nEarnings Soften And Yields Bite Stocks | iSafeSpend<\/title>\n<meta name=\"description\" content=\"The reporting period kicks into overdrive this week with the busiest week of the earnings season. 162 S&P 500 companies are scheduled to report this\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/isafespend.com\/?p=28666\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Earnings 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