The Next Cycle – How Earnings Will Predict Market Movement
After the regional banking crisis and the Federal Reserve’s recent decision to lift rates by a quarter of a percent, the next significant event that will turn markets will be earnings season. For the previous year’s fourth-quarter earnings reported around February, markets saw an increase in volume and volatility, with the S&P reaching five-month highs last seen in August. However, the overall guidance for this year also sent markets on their first downward trajectory for the year, lowering by around 7% into March after earnings from the largest American companies. Now, in April, companies will soon be reporting their profits for the first quarter, which are projected to drop on average by 6.8% year-over-year. If this were to be true, it would signify the largest decline in quarterly profits by year since the pandemic in 2020.
With high costs and interest rates, diminishing consumer demand, and a new fear of the American financial system, companies’ first-quarter earnings may very well see these major declines, as projected by analysts. Most importantly, several investors will be waiting for earnings reports from tech’s mega-cap companies, which include the likes of Apple, Microsoft, Google, Amazon, and more. Recently, subpar reports and weak guidance fueled not only these companies’ own shares but the entire tide of the markets. This week, the largest reports will come from titans in the banking industry, which include JPMorgan Chase, Wells Fargo, Citigroup, and others. Although these are much larger banks relative to the collapsed SVB, Signature Bank, and Credit Suisse, it will be interesting to see both consumer behavior and how deposits and balance sheets held up during the crisis.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.