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Busy Earnings week and a sad day

| April 25, 2023

This will be a busy week of earnings reports. As you can see in the graphic below, many of the largest tech companies will report this week.

If we look at some updated numbers from our friends at FactSet, we see that the market is off to a slightly subpar level (though not by much). Warning, this doesn’t read like your favorite novel!


So, while earnings are only slightly behind expectations, revenues are further behind expectations, with only 63% of companies beating their revenue expectations. This is less than the 69% beat rate for the last five years.

But the next two weeks will really show what earnings look like as companies give their guidance for the 2nd quarter. Somewhere around 180 out of the 500 companies in the S&P will report this week, while Apple will report next week.

The big question that remains is what will earnings look like in the aggregate going out the next 12 months? Here’s where analysts are coming in right now. The black line below appears to be about 228 for the next 12 months. If that proves to be the case, I would classify that as the “no landing” scenario, discussed in prior posts, where we don’t get a recession.

But as we’ve shown so many times in the past, the leading economic indicators (LEI) don’t back that up. See for yourself.

The LEI are very negative and have been coming down since the peak in late 2021. Coming off the high doesn’t necessarily mean anything, but going negative for a significant period is not good. Here are comments from the Conference Board.

Maybe I’m wrong, but those LEIs don’t look like a “no landing” scenario. Please don’t get me wrong, I don’t think we are going to have a 2008 crisis (although SVB didn’t help), but it looks like a normal cleansing cycle where the excesses are cleared out.

We have talked about “Zombie companies” in the past. You know, the companies that are still in business but are not fiscally sound enough to stay in business without ultra-low interest rates. Between the FED raising rates and banks losing deposits, we are setting up for tighter credit going forward. This will cause the interest rates paid by these Zombie companies to go much higher. This may push many of them into insolvency. Case in point…

We’re all going to miss our 20% off coupons, right. I was just thinking, if you always get a 20% off coupon, is it really 20% off or that’s just the regular price? Will 80% off liquidation sale coupons be coming next?

If they can’t pull off a sale (which seems unlikely since they’ve been working on that for a while), they will close down the stores. They have around 32,000 employees who will need to find new jobs. Hopefully some of them have already started that process.

Have a good week and as usual, if something doesn’t make sense or you want clarification, let’s talk.