The markets are off to a rocking start this year, making this a bizarre time to be an investor.
Bizarre primarily because stocks are logging gains (see Tesla up 44% YTD), and yet the view from Corporate America could not be more different than what the stock market is saying right now.
Sure, the old saying on Wall Street is that stocks often "climb a wall of worry." And maybe that's what is happening in January. But honestly, is anyone paying attention to the economic data (beyond inflation) or the ongoing earnings season?
"Yield curve Inversion, contracting M2 and PMIs, soft homebuilder and trucking surveys, and falling leading economic indicators all present a conundrum to [Federal Reserve Chairman] Jay Powell," Evercore ISI's Julian Emanuel noted recently. "While the soft landing vs. recession debate has intensified ahead of the Fed [meeting] on Feb. 1, there is reason to believe that recession is likely in the second half of the year."
And here are some earnings season data out of FactSet:
- 69% of S&P 500 companies have reported a positive EPS surprise for the fourth quarter, which is below the five-year average of 77%.
- S&P 500 companies are beating EPS estimates for the fourth quarter by 1.5% in the aggregate, which is below the five-year average of 8.6%.
- The blended earnings decline for the fourth quarter for the S&P 500 is -5.0%. If -5.0% is the actual decline for the quarter, it will mark the first year on year drop reported by the index since the third quarter of 2020.
Miserable reads on the health of Corporate America. Guidance has generally been poor as well: Just take a gander at the skimpy forecasts put out by 3M and Sherwin-Williams last week.
Anecdotally, execs are sounding quite bearish to me in our chats.
Intel CEO Pat Gelsinger struck a downbeat note on the economy in our chat last Friday. American Express CEO Stephen Squeri was more upbeat in our talk, but it wasn't a perfect quarter for the credit card giant given downshifts in the economy.
Furthermore, we're seeing signs of layoffs spreading beyond tech.
About 219 companies have laid off more than 68,000 tech employees this month, according to layoffs tracking website Layoffs.fyi. That's 68,000 people that may be contributing less to economic growth in the months ahead. And then there is the likes of Newell Rubbermaid, for one, is laying off 13% of its office workers.
Now, the market awaits whether Apple, which reports earnings later this week, will join its rivals Microsoft and Amazon by trimming amid what appears to be a slowdown in iPhone demand.
But who knows, Apple cutbacks may only fuel the current market.
A bizarre moment in time for investors. We'll see what February brings.
Happy trading!
What to Watch Today
Economy
- 10:30 a.m. ET: Dallas Fed Manufacturing Activity, January (-15.0 expected, -18.8 during prior month)
Earnings
- Alexandria Real Estate Equities (ARE), GE HealthCare (GEHC), Helmerich & Payne (HP), J&J Snack Foods (JJSF), Philips (PHG), SoFi Technologies (SOFI), Whirlpool (WHR)
