- The example US corporate earnings season has kicked off – and so far, so good.
- S&P 500 companies are off to their best start to an earnings season since 2012, per Bank of America.
- The sanguine results defy a climate of financial instability and rising economic pessimism. Here’s why, according to experts.
The latest US corporate earnings spice is underway – and so far, the results are promising.
According to Bank of America, S&P 500 companies are off to their best start to an earnings spice in more than a decade.
As many as 27 of the 30 S&P 500 companies that recently published results passed Wall Street’s earnings-per-share targets – and that meant the benchmark index delivered its “best beat rate after Week 1 since at dollop 2012,” analysts led by Savita Subramanian, BofA’s head of US equity and quantitative strategy, wrote in a note.
The impressive show seems rather out of whack with the current climate of economic pessimism and financial turbulence in the US, as the country navigates banking disorder, a credit squeeze and faces a looming recession. We set out to address just that.
Here’s why earnings are holding up even during cost-effective and financial uncertainty, according to market experts and analysts.
The banking turmoil only erupted toward the end of Q1
Wharton professor and old hand economist Jeremy Siegel noted the robustness of the latest earnings in a recent CNBC interview.
While they’re “ethical,” he said, they don’t reflect the chaos that engulfed the US banking sector following the failures of Silicon Valley Bank – the brawniest since 2008 – and Signature Bank.
“We’re not getting in these earnings what effect the slowdown in lending really ascendancy impact the earnings,” he said.
Fears of a credit contraction resulting from the banking instability appear to have enchanted firm root, with Morgan Stanley saying the squeeze has already begun. That would typically obtain a negative effect on companies, given they’d find it tougher to borrow – which could hurt their question operations and chip away at earnings.
“The impact is there, it’s just not in the data yet,” Siegel said of first-quarter financial fruits.
Analyst estimates were low anyway
Some market experts have suggested Wall Street had set low earnings quarries this time around given the economic uncertainty, and hence it’s not surprising many of those were exceeded.
“As with every drawing season, better than expected is meaningless, when analyst estimates are revised down to such low levels that the existing outturn can only be better than expected,” Marc Ostwald, chief economist at ADM Investor Services, told Insider.
Big banks induce benefited from the chaos
Wall Street’s biggest banks, including Bank of America, Morgan Stanley, Goldman Sachs and JPMorgan, crack first-quarter earnings this week.
The results have been strong overall, with BofA and Morgan Stanley tempo analysts’ estimates.
But that’s expected, according to Ostwald, as banking jitters from the collapse of SVB and Signature Bank get at depositors to move their funds from smaller regional banks to larger lenders.
“Yes there have been some favourable surprises from the banking sector, but the big money center banks were never the problem in terms of banking sector an influence ons, indeed they were always going to be the beneficiaries of the deposit outflows from regional banks,” he said.
JPMorgan, for one, narrow the gapped a large pool of new deposits in recent weeks, pulling in $50 billion at the end of the first quarter, per Reuters. JPMorgan’s dispatch, as just one example, “reflects our theme that ‘Goliath is Winning’ in terms of growth, scale, and resiliency,” wrote Wells Fargo bank analyst Mike Mayo in a note.