Pre-Market Stocks: The 5 Biggest Earnings Season Takeaways

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The third quarter corporate earnings season is winding down: We now have reports from about 450 of the S&P 500, or 90% of the total members of the index.

Results were mostly solid, with companies from Goldman Sachs to GM posting strong profits. But it’s about what comes next, and the companies’ projections haven’t been so optimistic. Interest rate hikes by the Federal Reserve are likely to continue through 2023 as persistently high inflation roils the economy and recession predictions abound. Here’s what investors need to know as we head into the potentially volatile final months of the year and beyond.

Gains have been strong: So far, earnings growth for the S&P 500 has been better than expected.

As of Tuesday morning, 69% of S&P 500 companies had beaten analysts’ estimates for the third quarter.

American consumers may be feeling bad, but they’re still spending, at least for now. GM ( GM ), Coca-Cola ( KO ) and UPS ( UPS ) were among the flagship companies that reported strong earnings and sales during the third quarter. We also saw solid earnings from Apple (AAPL) and record profits from oil giants Chevron (CVX) and Exxon Mobil (XOM).

Companies are beating third-quarter earnings estimates by 1.8% overall, according to FactSet data. But keep in mind the bar was set low to begin with, and the beat rate remains well below the 5-year average of 8.7%.

But technological gains have been weak: Dismal earnings results from Google ( GOOGL ) parent Alphabet, Microsoft ( MSFT ) and Facebook ( FB ) parent Meta Platforms weighed on major indexes.

Beyond determining market sentiment, technology gains also provide important clues about where the economy is headed. That’s because the industry is particularly sensitive to inflation, rising interest rates and a strong dollar.

The economic outlook is not good: Even after JPMorgan ( JPM ) reported a rise in earnings, CEO Jamie Dimon warned it was fighting the hatches of a recession. “These are very, very serious things that I think will probably drive the US and the world, I mean, Europe is already in recession, and you’re likely to put them into some sort of recession in six to nine months,” he said. demon

More than 50 S&P 500 companies have cut earnings per share expectations for the fourth quarter, according to FactSet data. That compares with 25 companies that raised their outlooks for the period.

Analysts aren’t too happy about the future either. Q4 earnings per share forecasts have been revised down 4.3% since October 1, according to Bank of America analysts. That’s 2.5 times more than the typical estimated cut at this point in the earnings season. Analysts at Bank of America have it also revised estimates for 2023 down 3.6%, almost three times more than normal.

“We continue to believe the path of least resistance for earnings estimates for the rest of this year and at least the first half of next year is lower,” Liz Ann Sonders and Kevin Gordon wrote at Charles Schwab .

No room for grace: Investors seem to be losing patience with disappointing corporate reports more than usual, which does not bode well for stocks in the final quarter of the year.

Companies that missed earnings and revenue expectations this quarter were hit hard. Its shares underperformed the S&P 500 by 6.4% in the next trading session; that’s the largest on record, Bank of America analysts said. Monday.

The big picture: Corporate America is in the midst of great economic uncertainty, and there’s nothing Wall Street hates more than a lack of clarity. We can expect more market chaos ahead.

Facebook’s parent company Meta said Wednesday it will lay off 11,000 employees. This marks the biggest job cut in the tech giant’s history.

In September, Meta had a count of more than 87,000, according to a September SEC filing.

“Today I’m sharing some of the most difficult changes we’ve made in Meta’s history,” CEO Mark Zuckerberg wrote in a blog post to employees. “I have decided to reduce the size of our team by 13% and let more than 11,000 of our talented employees go.”

The layoffs will be company-wide, but Meta’s recruiting team will be particularly hard hit, as “we plan to hire fewer people next year,” Zuckerberg said in the post. He added that the hiring freeze would last through the first quarter, with few exceptions.

The job cuts come as Meta faces a series of challenges to its core business and makes an uncertain and costly gamble to pivot into the metaverse. It also comes amid a spate of layoffs at other tech companies in recent months as the high-flying sector reacts to high inflation, rising interest rates and fears of a looming recession , reports my colleague Catherine Thorbecke.

Once valued at more than $1 trillion last year, Meta’s market value has plummeted to $250 billion.

“I want to take responsibility for these decisions and how we got here,” Zuckerberg wrote in his post on Wednesday. “I know this is difficult for everyone, and I feel especially sorry for those affected.”

Investors appeared to approve of the cost-cutting measures. The company’s shares closed up 5.2% on Wednesday.

In a sign that the housing market may finally cool, Redfin is set to close its moving business and cut its workforce by 13%, laying off 862 employees.

Redfin and other iBuyers such as Zillow, which shuttered its home-fending arm a year ago, have said the capital-intensive business had become unsustainable because the companies were buying homes at higher prices than they could sell in the future, informs my colleague. Anna Bahney.

About 264 of the job cuts will be directly related to the shutdown of RedfinNow, the company’s instant buying business, or iBuying, in which it buys a home as is, completes minor improvements and resells the ‘housing on the open market.

“The liquidation of RedfinNow is a strategic decision we made to focus our resources on our core businesses in the face of the rising cost of capital,” the company wrote in a filing with the Securities and Exchange Commission.

While real estate firms apparently couldn’t expand fast enough during the years of ultra-low mortgage rates and soaring home prices during the pandemic, many are losing jobs now as the real estate market cools and the economic outlook becomes more uncertain.

In June, Redfin laid off 8% of its workforce due to the slowdown in the real estate market. Through layoffs and attrition, the company said it has now reduced its total headcount by 27% since April.

“A layoff is horrible, but we can’t help it. We plan to continue to grow our market share, but that market in 2023 is likely to be 30% smaller than in 2021,” Redfin’s CEO wrote Wednesday, Glenn Kelman, in an email to employees. “The June layoff was in response to our expectation that we would sell fewer homes in 2022; this layoff assumes the decline will last at least through 2023.”

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