{"id":632531,"date":"2022-10-10T07:05:52","date_gmt":"2022-10-10T05:05:52","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=632531"},"modified":"2022-10-10T07:05:52","modified_gmt":"2022-10-10T05:05:52","slug":"stocks-face-brutal-earnings-season-with-all-eyes-on-apple","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/mobile\/632531\/stocks-face-brutal-earnings-season-with-all-eyes-on-apple\/","title":{"rendered":"Stocks face brutal earnings season with all eyes on Apple"},"content":{"rendered":"

Investors expect this earnings season to pummel stocks further and will watch Apple Inc in particular as a bellwether of global economic conditions.<\/p>\n

More than 60% of the 724 respondents to the latest MLIV Pulse survey say this earnings season will push the S&P 500 Index lower. That means no end in sight to the dismal run for stocks, after a tumble Friday decisively dashed hopes that the eye-popping two-day rally early last week would be the start of something bigger.<\/p>\n

About half of poll participants also expect equity valuations to pull back even further from their average of the past decade.<\/p>\n

The results underscore Wall Street\u2019s fear that even after this year\u2019s brutal selloff, stocks have yet to price in all the risks stemming from central banks\u2019 aggressive tightening as inflation remains stubbornly high.<\/p>\n

\"\"<\/a><\/p>\n

The outlook isn\u2019t likely to improve any time soon with the Federal Reserve steadfast on hiking rates, likely weighing on growth and profits in the process. Data on Friday showed that the US labor market remains strong, increasing the chances of another jumbo Fed rate hike next month.<\/p>\n

\u201cThird-quarter earnings will disappoint with clear downside risks to fourth-quarter analyst estimates,\u201d said Peter Garnry, head of equity strategy at Saxo Bank A\/S. \u201cThe key risks to third-quarter earnings are the cost-of-living crisis impacting demand for consumer products\u201d and higher wages eating into companies\u2019 profits.<\/p>\n

The US earnings season starts in earnest this week with results from major banks, including JPMorgan Chase & Co and Citigroup Inc, set to give investors a chance to hear from some of Corporate America\u2019s most influential leaders.<\/p>\n

Watch Apple<\/strong><\/p>\n

As for stocks to watch in the next few weeks, 60% of survey takers see Apple as crucial. The iPhone maker, which has the heaviest weighting on the S&P 500, will provide insight into an array of key themes, such as consumer demand, supply chains, the effect of the soaring greenback and higher rates.<\/p>\n

The company reports on Oct. 27. JPMorgan garnered the second-biggest mention, at 25%, but Microsoft Corp. and Walmart Inc. also drew a noteworthy number of votes.<\/p>\n

\"\"<\/a><\/p>\n

The reporting stretch kicks off with the S&P 500 down 24% this year, on pace for its worst performance since the Great Financial Crisis. Against that grim backdrop, almost 40% of survey participants are inclined to invest more in value stocks, compared with 23% for growth, the earnings outlook for which is vulnerable when interest rates rise.<\/p>\n

Still, 37% chose neither of those categories, perhaps reflecting Citigroup quantitative strategists\u2019 view that equity markets have \u201cturned decidedly defensive\u201d and are only just starting to reflect the risks of a recession.<\/p>\n

US stocks have had an awful year, but so have other financial assets, from Treasuries to corporate bonds to crypto. The balanced 60\/40 portfolio mixing stocks and bonds in an attempt to protect against strong moves in the markets either way has lost more than 20% so far this year.<\/p>\n

Inflation Fears<\/strong><\/p>\n

Survey respondents expect that references to inflation and recession will dominate earnings calls this season. Only 11% of participants said they expect chief executive officers to utter the word \u201cconfidence,\u201d underscoring the gloomy backdrop.<\/p>\n

\u201cI\u2019m expecting more cautious and negative guidance on the basis of broad economic weakness and uncertainty and tighter monetary policy,\u201d said James Athey, investment director at abrdn.<\/p>\n

About half of poll respondents see equities valuations deteriorating further in the next few months. Of those, some 70% expect the S&P 500\u2019s price-to-earnings ratio to fall to the 2020 low of 14, while a quarter see it tumbling to the 2008 low of 10. The index currently trades at about 16 times forward earnings, below the average for the last decade.<\/p>\n

Rough Outlook<\/strong><\/p>\n

Wall Street has a similarly dim view. Citigroup strategists expect a 5% contraction in global earnings for 2023, consistent with below-trend global economic growth and elevated inflation. The bank\u2019s earnings-revisions index shows downgrades outweighing upgrades for the US, Europe and the world, with the US seeing the deepest downgrades.<\/p>\n

Strategists at Bank of America Corp expect 20% downside for European earnings per share by mid-2023, while Goldman Sachs Group counterparts say Asia ex-Japan equities can see more earnings downgrades amid weak macro and industrial data.<\/p>\n

With all the pessimism, there\u2019s scope for positive surprises ahead. A beat to lowered earnings expectations is likely in third-quarter reporting, according to Bloomberg Intelligence strategists. Meanwhile, at Barclays, strategists led by Emmanuel Cau said that the results aren\u2019t likely to be a \u201cdisaster\u201d due in part to still-high nominal growth, but they doubt the outlook will be constructive.<\/p>\n

\u201cEarnings estimates for 2023 have started to move lower but have further to fall. Estimate revisions are a necessary part of creating a durable bottom in equity markets,\u201d said Madison Faller, global strategist at JPMorgan Private Bank. \u201cAs estimates drop, investors will be anxious to get more engaged in anticipation of a potential pause in the Fed\u2019s hiking cycle.\u201d<\/p>\n

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Read: Retirement expectations vs reality in South Africa<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Investors expect this earnings season to pummel stocks further and will watch Apple Inc. in particular as a bellwether of global economic conditions.<\/p>\n","protected":false},"author":59,"featured_media":503931,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34],"tags":[51,5349,3300,1999,26,5348,6989],"class_list":["post-632531","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mobile","tag-apple","tag-bank-of-america","tag-barclays","tag-goldman-sachs","tag-headline","tag-jpmorgan-chase-co","tag-saxo-bank"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/632531","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=632531"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/632531\/revisions"}],"predecessor-version":[{"id":632539,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/632531\/revisions\/632539"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/503931"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=632531"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=632531"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=632531"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}