Investor focus shifts to earnings season
Investor focus is set to move away from inflation and on to earnings season, which gets underway on Friday.
Major Wall Street banks such as JPMorgan Chase, Citigroup, and Wells Fargo are publishing their earnings reports. Companies reporting next week include Tesla, IBM, and Johnson & Johnson.
As I was quoted by Market Watch, France 24, Yahoo News, Times of Malta, Mena FN, Financial Mirror, Investor Ideas, Morning Star and Real News Magazine, amongst other media outlets, for several weeks, it’s all been about inflation and ensuing rate hikes for investors. Yet now, this is shifting.
The major banks will be closely watched because, as well as setting the tone for the remainder of the season, they are more meticulously linked to the rest of the economy than other sectors.
Furthermore, they’ll be more in focus than ever before after the crisis sparked by Silicon Valley Bank in March.
Indeed, should banks report lower earnings or revenue than forecast, this may be an indication they are having issues with lending and other financial activities.
Businesses and consumers may find it more difficult to access credit if banks are struggling, which may, subsequently, decelerate economic growth further and result in a recession.
In addition, a drop in bank earnings could signal weakening confidence in the broader economy, which could lead investors to pull back on their investments and further intensify the chances of a looming recession.
With established economic indicators, like the inverted yield curve, indicating a possible recession, as well as investors analysing the reports from the previous quarter’s earnings, they’ll also be reviewing the accompanying guidance for the coming months.
Indeed, guidance will be at the front of investors’ minds during this earnings season. Last time, negative guidance from corporates was evident, which I think will be the same this time.
Corporate guidance during earnings season is crucial for the wider economy as it offers insight into companies’ future expectations, which will affect investor sentiment and overall economic activity.
Consequently, if the US does tip into recession, it will obviously, have a global impact. Investors will therefore be scrutinising corporate guidance statements as earnings season gets underway, as recession concerns have been mounting over the last few weeks.