𝟭- 𝐏𝐫𝐨𝐟𝐢𝐭𝐬 𝐀𝐩𝐩𝐞𝐚𝐫 𝐒𝐭𝐫𝐨𝐧𝐠
Earnings for companies in the S&P 500 are on track to see a 10.9% increase from a year ago, surpassing analysts’ expectations from late June and heading for the largest quarterly rise in over two years, according to FactSet. However, the issue lies in revenue, which is underperforming. This suggests that profits are being driven by cost-cutting measures and one-time items, rather than strong underlying performance. “There are always one-time items, either gains or losses, something close to the income to justify that gain,” said Justin Burgin, vice president of equity research at Ameriprise Financial. “The true indicator is revenue”.
𝟮 - 𝐂𝐨𝐧𝐬𝐮𝐦𝐞𝐫𝐬 𝐀𝐫𝐞 𝐂𝐮𝐭𝐭𝐢𝐧𝐠 𝐁𝐚𝐜𝐤 𝐨𝐧 𝐒𝐦𝐚𝐥𝐥 𝐄𝐱𝐩𝐞𝐧𝐬𝐞𝐬
One reason for the underwhelming revenue performance is that people are tightening their budgets. McDonald’s reported that customers are opting for cheaper items and visiting its restaurants less frequently, leading to a decline in U.S. same-store sales for the first time since 2020. Starbucks reported another quarterly drop in sales, and Chipotle noted that its sales growth is slowing. “Low-income consumers, in many cases, are dropping out of the market, eating at home, and finding other ways to economize, cutting down on trips,” said McDonald’s CEO Chris Kempczinski during the company’s earnings call. French fry supplier Lamb Weston felt the pinch, with shares tumbling 28% after missing profit and sales expectations. Potato chips are another casualty: PepsiCo reported that shoppers are buying fewer bags of them. The S&P 500’s consumer discretionary sector is down 1.7% this year, the only sector in the red.
𝟯 - 𝐇𝐢𝐠𝐡-𝐄𝐧𝐝 𝐒𝐡𝐨𝐩𝐩𝐞𝐫𝐬 𝐀𝐫𝐞 𝐀𝐥𝐬𝐨 𝐄𝐜𝐨𝐧𝐨𝐦𝐢𝐳𝐢𝐧𝐠
The appetite for luxury watches, jewelry, and clothes seemed insatiable until recently. Now, even high-end shoppers are slowing down. The parent company of Louis Vuitton and Dior reported a disappointing 1% rise in sales from a year ago. Gucci owner Kering saw sales drop 11% and issued a profit warning. French distillery Rémy Cointreau flagged a sluggish market in China and posted an overall decline in sales. Germany’s Hugo Boss lowered its sales guidance for the year. While these luxury companies are not part of the S&P 500, their performance provides insights into the financial health of both aspirational and ultra-wealthy shoppers.
𝟰 - 𝐇𝐢𝐠𝐡 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐑𝐚𝐭𝐞𝐬 𝐀𝐫𝐞 𝐏𝐫𝐞𝐬𝐬𝐮𝐫𝐢𝐧𝐠 𝐁𝐚𝐧𝐤𝐬
After years of paying almost nothing on savings accounts, banks are now being forced to offer higher yields to prevent customers from moving their deposits elsewhere. This is squeezing their profit margins. Higher interest rates also mean that fewer people are taking out and refinancing mortgages. Consumers are spending heavily on credit cards and carrying balances, which is giving banks a boost. However, more borrowers are now falling behind on payments. Meanwhile, investment banking and trading revenue at banks like Goldman Sachs and JPMorgan Chase are showing signs of improvement.
𝟱 - 𝐁𝐢𝐠 𝐓𝐞𝐜𝐡 𝐂𝐨𝐧𝐭𝐢𝐧𝐮𝐞𝐬 𝐭𝐨 𝐁𝐞𝐭 𝐁𝐢𝐠 𝐨𝐧 𝐀𝐈
Tech giants have been riding high on hopes about the transformative powers of artificial intelligence technology. Now, they are spending billions of dollars to make those dreams a reality. “When you go through a curve like this, the risk of underinvesting is dramatically greater than the risk of overinvesting,” said Alphabet CEO Sundar Pichai on a call with analysts. Investors, however, are not so sure. Six of the seven big tech companies, known as the Magnificent Seven, have released their results so far, and the stock prices of four of them dropped the day after they reported. Amazon shares tumbled 8.8%, Tesla fell over 12%, Alphabet lost 5%, and Microsoft slipped 1.1%. The exceptions were Meta Platforms and Apple, with shares up 4.8% and 0.7%, respectively. Nvidia, the last of the Magnificent Seven, reports on August 28. For the year, Wall Street remains optimistic. Analysts expect earnings to rise by 10.3% in 2024, according to FactSet.
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