We are facing one of the most important weeks for the markets and the US (and the world) economy in memory. On the one hand, the US elections this Tuesday have enormous implications, from taxes, to inflation, to deficits… two totally different models They will clash at the polls and decide the course of the world economy. On the other hand, the Fed has its meeting this Thursday in which, despite the fact that everything seems tied with a cut of 25 basis points assured, the future steps of the central bank will be defined. However, while all this is happening, one of the most important trends of all continues: business results.
The strong resilience of companies’ income and profits are one of the pillars on which the US soft landing or even no landing has been built. Some companies with their unaltered activity are being able maintain a labor market at full employment without layoffs and economic activity in full operation. In fact, when there were doubts about a possible recession, it was in the accounts of the country’s main companies where analysts saw the ‘canary in the mine’.
In that sense, this week a good part of the company’s accounts have already been tied up. This Monday, 70% of them have already come to the fore. In the absence of some titans like Cisco, Disney, AstraZeneca, Home Depot or Qualcomm, little else remains. The big absentee is Nvidia, the chip giant that will present the season already closed, on November 20. Despite everything, the markets are already drawing conclusions from what seemed like a litmus test in which a weakening could be expected. The bottom line is that Wall Street companies have once again done their part.
According to data from Factsec, around 75% of all the firms that have presented have achieved profits higher than expected, exactly the same as the average of the last ten years and slightly below the last five years. For their part, profits have increased overall 8.4% compared to the previous year and 4.6% above estimates. Somewhat below the average of the last five years but maintaining the health of the sector. All this despite the fact that the alarms went off at first, since, after the presentation of the first third, it seemed that they would remain well below their historical average.
However, even though they are delivering on benefits, there is growing concern that These benefits are supported for the wrong reasons. Some analysts are warning that although they are managing to keep profits rising with cuts, the threat is in income, where fatigue is being noticed.
Charles Schwab experts define the current season as “strong.” Analyst Liz Ann Sonders comments that “Companies are really impressing with their results.” However, the firm points out that the reasons why this success is being achieved must be carefully clarified. It’s not that companies are seeing their revenues clearly better than anticipated, but rather that they are finding ways to maintain profitability in an environment that is more complicated than the numbers at first glance suggest.
According to Charles Schwab in gross receipts, the rate of exceedance It has only passed 59%, much less than what was achieved in profits. In fact, this rate is the lowest since the first quarter of 2020, when the pandemic stopped the world and the activity of Wall Street companies sank. In that sense, experts warn that these results should be read very carefully. “We think the market’s focus has shifted (and will continue to shift) to what’s happening in top line. Cost cuts can only drive stronger profits for a while, until companies can no longer cover the weak demand”.
Going to the sector level, practically all of them have managed to beat the forecasts except for three clear examples, the energydestroyed by the fall in oil prices, which is negative compared to estimates with a 28.5% drop in its profits. For their part, firms have also experienced setbacks. industrial (-9.6%) and materials (-2%).
However, the big doubt that ran through the markets was about big technology companies. A place where there is a great slowdown. The Magnificent Seven have seen howOr this stellar 50% growth in profits It has been diluted up to 20% this season (waiting for Nvidia). All this despite the fact that these values have been meeting the forecasts this season. Alphabet started last week up 4.64% thanks to a 35% year-over-year increase in results from its cloud division, which is 600 basis points ahead of consensus expectations. Microsoft (+1.39%) confirmed the trend with a 34% increase in its Azure cloud offering. Apple did emerge defeated from its results, beating profits, but with worse prospects for the last quarter.
Charles Schwab believes that the profit growth of mega-capitalized companies will continue to stagnate. “This trend will remain in place until the third quarter of 2025.” In that sense they say that “this contrasts with a context of general improvement for the profits of stocks that do not belong to this group.” This “continues to be a fundamental pillar, a rotation in leadership that began to work in mid-summer” and that the firm sees consolidating as the months go by.
In any case, Bank of America believes that the increase in profits, Regardless of whether it comes from cuts or increases in income, It is a great signal for the markets and the economy. Savita Subramanian, the bank’s strategist, commented in a report published this Monday that this may not be a trend, but rather a successful step through a complicated context. “Companies have been operating in a weak demand environment due to weakness in goods and manufacturing for almost two years, but we see signs that the worst may be behind us,” Subramanian defended.
In that sense, the North American firm insisted that they expect that from now on we will see an even more powerful increase in profits. “The clues that have been left in the earnings conferences of this third quarter suggest that “We will see notable earnings growth in 2025.” BofA expects this to come especially from industry with a “clear recovery in manufacturing activity in the first half of the year thanks to the end of election uncertainty and a Fed continuing to cut rates.”
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