86% Of Earnings Are In.. Where We Are Now

TL;DR

Despite disappointing earnings in the banking and basic materials sectors, most other sectors have exceeded expectations in the U.S. earning season. However, there are several factors to consider such as potential bait-and-switch tactics, adjustments made to earnings per share numbers, reliance on corporate tax cuts, and the impact of wage inflation.

Transcript

right so let's look at the u.s. earning season so my screen this morning tells me we're about 86% of the way through reporting of the S&P 500 it certainly seems to be the case that the banking earnings have disappointed certainly the the market environment in the fourth quarter and flat yieldco has made it relatively difficult for banks for instanc... Read More

Key Insights

• 😥 Banking earnings and the basic materials sector have disappointed, while most other sectors have exceeded expectations.
• #️⃣ Analyst adjustments and one-off charges can impact earnings per share numbers.
• 😮 Corporate tax cuts have significantly supported earnings, but rising wage inflation and interest rates could pose headwinds for equities.

Questions & Answers

Q: Why have banking earnings disappointed in the U.S. earning season?

Banking earnings have been impacted by a challenging market environment in the fourth quarter and flat yield curve, making it difficult for banks to generate significant profits.

Q: How reliable are the earnings per share (EPS) numbers reported during the earning season?

The EPS numbers are often adjusted by analysts, who may exclude one-off charges. However, it's crucial to note that some one-off charges can actually be recurrent charges, so it's important not to solely rely on these adjusted numbers.

Q: How have corporate tax cuts influenced earnings numbers in the U.S.?

Corporate tax cuts introduced by the Trump administration have significantly supported earnings in the U.S. Additionally, there has been an increase in operating margin, which has further boosted earnings. However, this increase in operating margin may not be sustainable as factors like wage inflation and rising interest rates can impact profitability.

Q: How might wage inflation and rising interest rates affect earnings and equities?

If wage pressures continue to build and are not offset by profitability, it can lead to smaller margins and potentially lower earnings for companies. Alternatively, it could also result in higher inflation across the economy, prompting the Federal Reserve to raise interest rates. Both scenarios can be headwinds for equities.

Summary & Key Takeaways

• The U.S. earning season is approximately 86% complete, with banking earnings and the basic materials sector disappointing.

• However, most other sectors have exceeded expectations so far.

• It's important to consider factors such as bait-and-switch tactics, adjustments to earnings per share numbers, reliance on corporate tax cuts, and the impact of wage inflation when analyzing earnings reports.