Forget about inflation, it’s all about profits

New York

There is a season for everything and now is the time to earn.

Over the past few weeks, investors have focused squarely on inflation and Fed policy, but now market reactions are larger for earnings (especially losses) and smaller for economic data.

what happens: “We expect earnings to take center stage in the future,” Savita Subramanian and Ohsung Kwon wrote in a note on Friday. They noted that over the past three quarters, the S&P 500’s reaction to earnings beats and misses has surged higher and has now outpaced the market’s one-day reaction to both CPI inflation and Fed policy meeting decisions.

Companies that missed both sales and earnings per share during the most recent quarter underperformed the S&P 500 by about six percentage points on average the next day, the biggest reaction to lost earnings ever.

Shares of Disney sank 13.16% last November — their lowest in more than two years — when they missed earnings estimates. Meta shares fell 24% after showing a drop in third-quarter revenue in October, the company’s second consecutive quarterly revenue drop. Palantir shares closed down more than 11% in November after missing estimates slightly.

“We see this as a market narrative shift from the Fed and inflation to earnings: reactions to earnings are ramping up, while reactions to inflation data are Subramanian and Kuhn wrote the FOMC meetings.

So we can expect some serious volatility over the next few weeks as companies report their Q4 earnings.

The Bank of America predictive analytics team analyzed earnings transcripts to calculate sentiment scores and found that corporate sentiment held steady in The third quarter, far from its highs, indicates the potential for lower earnings ahead.

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Likewise, the companies Signs of better business conditions (specific use of the words “better” or “stronger” versus “worse” or “weaker”) remained well below the historical average, and signs of optimism fell to the lowest level since the first quarter of 2020.

So far, the fluctuations have been to the downside. Earnings per share estimates for the S&P 500 for the fourth quarter are down about 7% since October. Early earnings reports from some of the largest financial institutions point to a dismal quarter.

Bad news ahead: Estimated earnings decline for the S&P 500 in the fourth quarter of 2022 is -3.9%, according to FactSet analysis. If this is indeed the actual It will mark the first profit decline reported by the index since the third quarter of 2020.

Over the past several weeks, according to the FactSet report, earnings forecasts for the first and second quarters of 2023 have shifted from year-over-year growth to downward year-over-year.

Last: JPMorgan Exceeding estimates For fourth quarter revenue but also increased the amount of funds for expected defaults on loans. The bank added provisions of $2.3 billion for credit losses in the quarter, up 49% from the third quarter.

The move was driven by “a slight deterioration in the company’s macroeconomic outlook, which now reflects a mild recession in the central case,” the report said. On a subsequent call, JPMorgan Chief Financial Officer Jeremy Barnum told reporters that the bank It expects a recession to occur by the fourth quarter of 2023.

American bank

Also beat the profits Outlook But Chief Executive Brian Moynihan said on Friday that the bank is preparing for higher unemployment and a recession in 2023. “Our baseline scenario expects a moderate recession,” he said. The bank added provisions of $1.1 billion for credit losses, a sharp change from last year when that number was negative.

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What’s Next: Hold on to your hats. Over the next week, 26 companies on the S&P 500 are scheduled to report fourth-quarter results.

Apple CEO Tim Cook responded to angry shareholders by recommending that the company cut his salary this year. My colleague Anna Cuban reports.

Cook earned $99.4 million in total compensation last year. The vast majority of his compensation for 2022 — about 75% — is tied up in company stock, with half of that dependent on share price performance.

But shareholders voted against Cook’s salary package after Apple’s stock fell nearly 27% last year. The vote is non-binding, but the Board’s compensation committee said Cook himself Reduction request.

“The Compensation Committee weighed shareholder opinions, the exceptional performance of Apple, and a recommendation by Mr. Cook to adjust his pay in light of the comments received,” the company said in its annual proxy statement issued Thursday.

But don’t cry for Tim Cook just yet. This year, the CEO’s award goal is $40 million. About $30 million, or three-quarters, of that is related to share price performance. Chief Technology Officer, who headed Apple

As of 2011, his personal wealth is estimated at $1.7 billion, according to Forbes.

bottom line: Apple stock price, eg other technology companies, slumped last year as coronavirus shutdowns shut down some of its factories in China. Supply chain bottlenecks and fears that the global economic slowdown will stifle demand have also led to lower inventories.

Angry investors think that the person at the helm of the company should also see a drop in wages.

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