Corporate earnings season is underway, that time when companies share their billions in sales or double-digit profits. But the data shows even companies are struggling with high inflation and interest rates.

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It's Not Just You: The ‘Vibes Are a Little Off’ in This Economy

Well, joining me now to break down everything that we need to know about this earnings season. Big picture is Christine Short, head of Global corporate events Research at Wall Street Horizon ATM X Company. Thanks for joining, of course. Thanks for having me. All right. So you are our expert here. What is the expectation for this earnings season? Well, as we were talking before the segment of the little off, right? We're starting the season, not in as positive of places. Maybe we started the Q four earnings season even though all the big banks that reported on Friday and that kind of kick it off. JP Morgan City Group, Wells Fargo. They did be on the top and bottom line, but we saw stock still tank. I think some of that had to do with comments or really looking particularly at Jamie Diamond CEO of JP Morgan. And he said, look, there's still inflationary pressures, there is an unsettling global landscape right now. And so I think some of those comments really resonate although you have Jane Fraser City Group saying look, we still expect a soft landing. So the environment is not terrible, but it's between that and then the expectations on Friday for the Iran missile strike in Israel, like you said, didn't maybe turn out as bad they were thwarted. But now we're still looking for what the response might be. So there's a lot of uncertainty and I think heading into last, last season, the sentiment was higher across the board from CEOS, from consumers and from investors. And so you're heading into a season where there's a little more uncertainty, but happy to see that things are back up after two down weeks for, for this beginning of the quarter. But it's good to see that investors are feeling a little more positive heading into today. Yes. So what is the expectation in terms of S and P earnings growth? I think the estimate that I saw was roughly about 3% or so for this first quarter, right? Obviously, this reporting season covers the first quarter of the year. Yes. So it's dropped a bit that was heading into last week. That's what it was, it was about 3.2% as of Friday was just under 1%. A lot of that didn't have to do with reported results because remember that's a blended rate. So that includes companies that have reported and estimates for those that have yet to report. So analysts actually went in and revised downward for companies that have yet to report. And I think a lot of that has to do with these higher than expected inflation readings, pushing down the number of cuts from the fed this year. And some of the comments like I said on Friday, so analysts went down and ratcheted down a bit. But remember even though it's only about 1% for the A PS expectation of growth for this quarter, that usually is pretty conservative, we end up usually about 4 to 5% points higher. So that could get you in the mid single digits. But I just think it's interesting that they cut so much, you know, as we just started the quarter. But it's interesting because we've seen and correct me if I'm wrong. But I think I read that corporate sentiment was pretty good. I would say up until these past 10 days or so. Right. Dividends by back and both of those did seem to be on the table. Yeah, last quarter, dividends and buybacks were the highest, they've been couple of years and that's positive companies are returning value to shareholders. They've got a lot of cash on hand. So that's still in play. And, you know, we calculate something called the earnings report index that shows corporate uncertainty, ceo uncertainty. We have yet to release that for this quarter. We're actually going to, you know, send it out tonight. The reason we haven't released it is because it was actually quite high, showing uncertainty might be. We actually had to really look at the data because it's, it's much higher than we seen in the last couple of quarters. So we want to make sure there's not seasonality there. But it seems to me that he might be a little uncertain still and we thought maybe there was an end to that, starting this year that, you know, companies were feeling a little bit better about their position. But you're right, they're still very cash heavy. We expecting earnings to be, you know, very good growth to be good. But so there, there are some things that still need to be worked out, right? Interesting. And so in terms of what you're hearing, the CEO commentary did, it seems as if that kind of too had transpired in these past two weeks or so. And what were the major uncertainty concerns there? Yeah, look like Jamie Dimon said the same thing last quarter and again, the markets really react to what he says. So, and it's no surprise there is inflationary pressure. Like, look, we saw CP I the other week PP was actually a little bit better than expected. PC, which is the main inflationary indicator that the fed looks at has yet to report for March. That's been a little bit better the last couple of months, only at about 2.5 to 2.8%. But the fed says their target inflation rate is 2% and doesn't look like we're getting there. And remember we started the year expecting about six cuts. That's now down to about 2% or two cuts. So that's the probability has shifted. Investors are pricing that in later cuts, less cuts. And so I think you're still seeing that in the commentary, but as we go on, it is certainly getting priced and saw the first two weeks of this quarter, you know, take a bit of a hit. But I think you've seen that price in at this point, what should our viewers know about seasonality? I mean, typically we do see money come into the market at the start of the year. So our viewers, you know, have been able to follow along with that in terms of market action. Yes, but in terms of what you observe from a company perspective, is it the case seasonally that usually the first quarter is pretty robust and then we would see a dial back in the second quarter. Yeah, that's true. I think you also see even reporting in the fourth quarter is a little bit different just because of how the holidays follow this quarter at the end, tail end of Q one coming into Q two, there was a little bit of difference because you had that very early Easter holiday. Did that impact things? You know, so you have to look at like how the holidays fall that they have one less day. Some of these companies especially that rely on consumers. And so that's sort of the things that we look at and then again, you have to remember the, you know, the further out in the you go, expectations are always very high, right? So as you get closer to each quarter, they get kind of reeled into something that's a little more realistic, which is why we say the second half of the year estimates for S and P 500 growth are still quite lofty. But as we go through this first quarter reporting season and we get more of that guidance from companies, you'll see those ratcheted back as well. What is your take away from the bank results that we've gotten so far? I know you mentioned, I JP Morgan City, we had Wells Fargo and obviously Goldman Sachs today. Yeah, I mean, the story is a little bit different for all of them. Obviously, Goldman Sachs, investment Banking was stronger and that's what we're hoping heading into this year. We're seeing stronger IPO and, and a expectations for Wells Fargo City Group JP Morgan last week. I think you're seeing that higher interest rates are starting to have an impact whether it be on borrowers ability to repay or, you know, obviously they've profited very well from higher interest rates are great for banks interest income has been high. But now you're starting to see that they actually have to pay up more for deposits. And so they didn't expect high interest rates for this long and it's starting to have a bit of a negative impact or, or at least offset the positive impact. And I think you saw pretty much every CEO comment that their, their core lending income will probably be flat this year. And I think that's why you saw all of those banks trade down last week despite the fact that they reported better unexpected results. So in terms of what we should be watching, the rest of this reporting season were very, very early on, But what would be some clues that would be important for investors to glean? Yes. So this week we finished the banks, so we move into a bit more tech and of course, that's always been a very hot to watch sector of the magnificent seven. Do they continue to perform? Do they justify some those very lofty prices that they've had this year and last year? So we'll certainly be focusing on tech. Also investor reaction. That's one thing we've even only 6% of companies from the S and P 500 have reported. Thus far, investors have not rewarded positive reporting companies as much as usual and they punished companies that miss expectations more than usual. So investors are expecting a lot this earnings season. And I just think that's interesting to see so early on. Interesting. Now, in terms of buybacks and dividends, you mentioned that the data show that we had seen a good amount of that actually in the first quarter, after some had been on the sidelines, given the environment. Now, do you expect that to continue? I mean, companies are very cash heavy, right? Still at this point. So despite some of the headwinds, I still expect that you will see dividend increases improve. And that's what we saw last quarter was the highest number of dividend increases we've seen in a couple of years which is great buy backs, the momentum is still there. I know they're always very controversial. Some think there's better things you could do with your, with your money than, than buy back shares. But I think you see those continue to trend up this year and that would seemingly be an overall positive for the market. Sure, that that is a cue that companies are feeling good about their cash position. They're feeling good about their economic future. Very good. Christine. Anything else we should know about this raining season? I think that's, that's pretty much it in a nutshell. Like I said, I think it's kicked off a little less positively than we would have expected. But again, this is just one sector. I think there's a lot of pick your poison, there's a lot of different headwinds going on. But again, you see retail sales were today in the market seem to like that markets are up. Sometimes that positive news can be negative because it means the economy is still really strong. Does that mean less? Right? Does that mean no great cuts this year? But for now it shows the consumer is still very resilient despite the fact that inflation has remained so high and that is a positive, right? All right, Christine Short, always with great info. Thank you. As always Christine head of global corporate events research at Wall Street Horizon at TMX Company.