Companies around the world are revising their full-year sales and profit forecasts downward, impacted by rising interest rates and economic weakness in China. This adjustment has dampened the outlook for earnings growth this quarter.
Several prominent companies, including McDonald’s, Nissan, Tesla, Nestlé, and Diageo, have disappointed investors with their latest results. With approximately 40% of U.S. and European companies having reported their earnings, results have largely met expectations. However, given the strong recent performance of global equity markets, this has been seen as underwhelming.
“A very mixed season so far in terms of results,” noted Brian Mulberry, client portfolio manager at Zacks Investment Management. “We're starting to see the pressure that the higher-for-longer interest rate environment is putting on companies and their ability to continue to drive earnings and revenue growth.”
The upcoming week will see earnings reports from major tech giants including Apple, Microsoft, Samsung Electronics, Toyota Motor, Exxon Mobil, Shell, L'Oréal, and Adidas, which may provide more insight into market trends.
Companies have pinpointed two primary issues affecting their profitability: higher interest rates that are restraining consumer spending and the sluggish performance of China’s economy, the world’s second-largest economy. McDonald’s, for instance, reported its first global sales decline in 13 quarters, attributing it to economic weaknesses in China. Similarly, Unilever, Visa, and Aston Martin have also highlighted challenges in the Chinese market. Analysts caution that the demand in China is unlikely to improve soon, given the prolonged property downturn and job insecurity impacting consumers.
U.S. stocks showed mixed results on Monday amidst volatile trading, with investors awaiting outcomes from a Federal Reserve meeting and earnings reports from major technology companies later this week.
“The Chinese… are not willing to spend because they are afraid about the future,” said Stefan-Guenter Bauknecht, portfolio manager at DWS. “Until growth improves in China, the country will be the weakest of the big regions, or at least the most far behind expectation,” he added.
In the United States, earnings per share have risen by nearly 12% year-over-year, the strongest growth in the last ten quarters, according to LSEG data. Earnings in Europe have increased by 4%, slightly surpassing market expectations and marking the first positive growth rate for the region since 2022. Despite these positive figures, consumer weakness is evident across various sectors, leading to increased guidance cuts. U.S. companies have reduced their third-quarter forecasts to 7.3% year-over-year growth, down from 8.6% at the beginning of July, as per LSEG data.
“While Q2 results overall have been decent, the season has nonetheless spooked the market on signs of consumer stress,” noted Bank of America analysts in a research note.
Both Nestlé and Unilever reported first-half sales growth below expectations. Economic pessimism is rising in the euro zone’s largest economies, adding to concerns over the region’s slow recovery.
“There is value-seeking behavior among consumers. There is pressure, especially at the low-income range,” said Nestlé CEO Mark Schneider during a call with journalists.
The auto industry is also facing challenges in the U.S., with high inventories and logistical issues affecting the profits of Ford Motor, Stellantis, and Nissan. Tesla, a leader in electric vehicles, has disappointed investors with its recent results, and many view the company as overvalued amidst slowing EV sales.
LG Energy Solution, a key EV battery supplier for Tesla and Hyundai Motor, has forecasted a revenue decline of over 20% this year due to a sharper-than-expected slowdown in global EV demand. Its larger competitor, China’s CATL, reported a 13% drop in second-quarter revenue.
However, not all earnings news is negative. Alphabet, Google’s parent company, has shown promising growth in cloud computing revenue, which bodes well for other tech giants reporting later this week. 3M’s results pushed its shares near a two-year high, while General Motors and Johnson & Johnson reported strong earnings, and JPMorgan Chase posted a record profit.
Asian chipmakers have become more optimistic about demand due to the global AI boom, helping them withstand the tapering of pandemic-driven electronics demand. “AI is so hot; right now everybody, all my customers, want to put AI functionality into their devices,” said TSMC Chairman and CEO C.C. Wei, noting that AI demand is now more substantial than in previous years. TSMC’s shares have surged 56% so far in 2024.
Despite the optimistic forecasts, major Asian chipmakers face pressure to meet rising expectations. This is also true for Nvidia, an AI leader whose stock value briefly surpassed $3 trillion earlier this year before retreating in the summer. “Investor expectations are so high they may be hard to meet, and in the short term, the stock price may not rise as much,” said Lee Min-hee, an analyst at BNK Investment & Securities.
The MSCI International index has gained 11% so far this year, peaking earlier this month before retreating, partly due to hopes that the U.S. Federal Reserve might begin cutting interest rates, following similar actions by other central banks.
“To the extent that lower rates ahead remains the popular view, analysts are unlikely to be lowering overall earnings projections for next year,” said Rick Meckler, partner at Cherry Lane Investments.
(Source:www.investing.com)
Several prominent companies, including McDonald’s, Nissan, Tesla, Nestlé, and Diageo, have disappointed investors with their latest results. With approximately 40% of U.S. and European companies having reported their earnings, results have largely met expectations. However, given the strong recent performance of global equity markets, this has been seen as underwhelming.
“A very mixed season so far in terms of results,” noted Brian Mulberry, client portfolio manager at Zacks Investment Management. “We're starting to see the pressure that the higher-for-longer interest rate environment is putting on companies and their ability to continue to drive earnings and revenue growth.”
The upcoming week will see earnings reports from major tech giants including Apple, Microsoft, Samsung Electronics, Toyota Motor, Exxon Mobil, Shell, L'Oréal, and Adidas, which may provide more insight into market trends.
Companies have pinpointed two primary issues affecting their profitability: higher interest rates that are restraining consumer spending and the sluggish performance of China’s economy, the world’s second-largest economy. McDonald’s, for instance, reported its first global sales decline in 13 quarters, attributing it to economic weaknesses in China. Similarly, Unilever, Visa, and Aston Martin have also highlighted challenges in the Chinese market. Analysts caution that the demand in China is unlikely to improve soon, given the prolonged property downturn and job insecurity impacting consumers.
U.S. stocks showed mixed results on Monday amidst volatile trading, with investors awaiting outcomes from a Federal Reserve meeting and earnings reports from major technology companies later this week.
“The Chinese… are not willing to spend because they are afraid about the future,” said Stefan-Guenter Bauknecht, portfolio manager at DWS. “Until growth improves in China, the country will be the weakest of the big regions, or at least the most far behind expectation,” he added.
In the United States, earnings per share have risen by nearly 12% year-over-year, the strongest growth in the last ten quarters, according to LSEG data. Earnings in Europe have increased by 4%, slightly surpassing market expectations and marking the first positive growth rate for the region since 2022. Despite these positive figures, consumer weakness is evident across various sectors, leading to increased guidance cuts. U.S. companies have reduced their third-quarter forecasts to 7.3% year-over-year growth, down from 8.6% at the beginning of July, as per LSEG data.
“While Q2 results overall have been decent, the season has nonetheless spooked the market on signs of consumer stress,” noted Bank of America analysts in a research note.
Both Nestlé and Unilever reported first-half sales growth below expectations. Economic pessimism is rising in the euro zone’s largest economies, adding to concerns over the region’s slow recovery.
“There is value-seeking behavior among consumers. There is pressure, especially at the low-income range,” said Nestlé CEO Mark Schneider during a call with journalists.
The auto industry is also facing challenges in the U.S., with high inventories and logistical issues affecting the profits of Ford Motor, Stellantis, and Nissan. Tesla, a leader in electric vehicles, has disappointed investors with its recent results, and many view the company as overvalued amidst slowing EV sales.
LG Energy Solution, a key EV battery supplier for Tesla and Hyundai Motor, has forecasted a revenue decline of over 20% this year due to a sharper-than-expected slowdown in global EV demand. Its larger competitor, China’s CATL, reported a 13% drop in second-quarter revenue.
However, not all earnings news is negative. Alphabet, Google’s parent company, has shown promising growth in cloud computing revenue, which bodes well for other tech giants reporting later this week. 3M’s results pushed its shares near a two-year high, while General Motors and Johnson & Johnson reported strong earnings, and JPMorgan Chase posted a record profit.
Asian chipmakers have become more optimistic about demand due to the global AI boom, helping them withstand the tapering of pandemic-driven electronics demand. “AI is so hot; right now everybody, all my customers, want to put AI functionality into their devices,” said TSMC Chairman and CEO C.C. Wei, noting that AI demand is now more substantial than in previous years. TSMC’s shares have surged 56% so far in 2024.
Despite the optimistic forecasts, major Asian chipmakers face pressure to meet rising expectations. This is also true for Nvidia, an AI leader whose stock value briefly surpassed $3 trillion earlier this year before retreating in the summer. “Investor expectations are so high they may be hard to meet, and in the short term, the stock price may not rise as much,” said Lee Min-hee, an analyst at BNK Investment & Securities.
The MSCI International index has gained 11% so far this year, peaking earlier this month before retreating, partly due to hopes that the U.S. Federal Reserve might begin cutting interest rates, following similar actions by other central banks.
“To the extent that lower rates ahead remains the popular view, analysts are unlikely to be lowering overall earnings projections for next year,” said Rick Meckler, partner at Cherry Lane Investments.
(Source:www.investing.com)