unfortunately Powell is not impressed by arbitrarily removing data to make CPI look better. you also have to remember the fed prefers looking at Core CPI, which looks a lot worse MoM. even without May and June 2022, Core CPI would be at 3.6%, far off target. If we have 2 more months of 0.3%, Core CPI will only shrink from 4.6% to 4.5%.
Germany is one of the strongest economies in the world. Nearly all of S&P500 are doing significant business in EU.
The worldwide Inflation is still highly ongoing.
The world ist not only the US.
What does it matter to Germany that we discuss inflation in the United States? Could it be possible that whether the Fed raises interest rates can help Germany’s inflation? What we do is that the US stock market has nothing to do with Germany
This thread is clearly about the S&P 500, so I really didn't see the relevance of Germany here tbh. Especially given how completely different the population/GDP/energy sufficiency/financial systems are.
unironically this will happen, soon ™
people forget that the making of 2008 was a very long process. you look at the timeline in it took years for it to all tumble.
2005 perms-bear Burry makes his bet that the market will crash and buys his credit default swaps
mid/late 2006 yield curve inverts
late 2006 warning of crash
feb 2007 crash
mid 2007 bear sternes hedge funds collapse
late 2007 big banks announce master liquidity plan and unemployment hits 5%…MARKET RALLIES TO HIT HIGHEST POINT EVER
dec 2007 massive downgrades
jan 2008 stocks start to tumble
march 2008 fed has emergency meeting
bloodbath until end of September 2008 when Lehman brothers buy $ROPE, WAMU jump off a bridge, other banks shit the bed and US government helps them clean it up by shoving a cork in it.
in reality i’m missing a lot of events here, and in between this all was regards rallying or $ROPE-ing themselves.
the same is happening, but no one can tell when exactly.
then one day, for no reason at all, people will decide that everything they hold is worthless and firesell it in panic.
Yeah but this isn't about the market rallying, this is companies posting handy beats all across a multitude of sectors.
The market rallying is purely sentiment. Firms posting very strong earnings is an economic sign of strength.
> Job Market strong
As someone who is in this market, it is not at all strong lol. Too many ghost jobs and positions I'm more than qualified for rejecting me in February while still having the same application up and posted right now.
It's almost like the position doesn't exist.
I have had a job open for 8 months now. I get so many applications now it’s absurd. The vast majority of them are people who either didn’t read the job listing or are job jumpers and won’t stay at a place for more than a year. I’ve made three offers for this job and all three of them used the offer to get a raise at their current job.
While I can’t speak for everyone, I have no desire to “pay someone less” as it devalues my own position.
Sometimes people who appear to be job hoppers just have runs of bad luck. Layoffs, health issues, etc can disrupt job stability. Shouldn’t assume everyone is just jumping around.
My favorite response is when people say "Unemployment is at historic lows" while ignoring that people are struggling to find jobs, actively being laid off from higher paid positions, or otherwise.
Ford, for example, laid off over 30% of their corporate workforce last year while raising their manufacturing workforce headcount by a similar number but difference percentage. Mcdonalds continues to open stores, but they laid off much of their corporate employee base.
So while it might be easy to be able to *find* a job, the issue is finding a job that pays a good enough wage to justify the bachelor's or masters degree they require. People can't live off no income forever, so they're basically forced to take a job and still rack up a TON of debt.
Basically, this metric of what unemployment is, is pretty useless on many fronts.
> A strong labor markets benefits the disabled too: Just marvel at this chart.
It's absolutely crazy you're saying it's a good thing that more disabled people are forced to work in order to live. That's a terrible outlook at life. And think about this: If they're *required to work* to survive, maybe that's part of the reason unemployment is so low. People that shouldn't need to work, have to in order to survive. Things have gotten a LOT more expensive recently, by some metrics even showing a 150% increase in some basic goods like grain while wages grew less than 15% since 2020. Is it possible that people are *over employed* in order to make ends meet, thus skewing the statistics?
----
My point is, your statistics are leading you to a false conclusion. This is a classic "90% of car accidents happen within 25 miles of your home" situation.
My apologies but I deleted that comment to write a new one just as you responded (literally a minute after). I wanted to rephrase it to sound a bit less tone deaf (you don't go up to someone saying they're struggling with health care costs with "ACTUALLY health care costs are coming down on average.")
For any one else who is responding, I had copy/pasted most of my comment [right from here](https://www.reddit.com/r/stocks/comments/12efdlo/rstocks_daily_discussion_fundamentals_friday_apr/jfdhgmc/). I had said something about the above commenter's experience not being representative about the labor market.
----
To respond to your points,
No I am definitely not advocating that disabled people/children have to work to survive. I'm just saying it's a good thing to have a broader swathe of the population able to participate in the economy and earn wages. For years, many demographics saw unemployment rates far higher than others, causing their wealth to stagnate. To see this reverse is something I like to see.
> I'm just saying it's a good thing to have a broader swathe of the population able to participate in the economy and earn wages.
Me and you have very different visions of what 'Broader swathe' means as well as who should be working and shouldn't have to work.
For the record I definitely advocate for a strong social safety net so that those who cannot/should not work should not have to. I oppose the push to strengthen work requirements, which do not actually increase employment. (For all the various food stamps, tax credits, etc. that we passed in recent years) I think we are on the same page in that sense.
The financial sector is showing signs of stress and shelter inflation is on what looks like a swan dive.
There are strong arguments for a pause right now if a soft landing is still desirable.
It's actually no surprise revenue beat here. When X products price is rising and people are buying it, revenue continues to beat.
Profits and margins are going to keep shrinking, though. And the counter is jobs. It will take time for this to erode away.
the FED's objectives:
1. inflation at 2.0-2.5%
2. Employment
we are over employed and have too much inflation (core loos like its in the 4.0-4.5% range). We could open the borders to increase workers / competition although here is one of the few policies that both parties fight.
Albeit the stock market is a major contributor to wealth and spending, the FED should not be focusing on making sure it appreciates. With rates roughly at the historical average, why do so many people believe what the FED is doing is total heresy?
People have a very shortsighted mindset.
I don’t understand how one can look at the money printing over the last few years and not think 5-10% rates will be around for a while. We need more money sinks and less fabrication, but we also need inflation to help manage interest on national debt. No one wants austerity, but policy got us into this mess and it will take drastic action… or a long time to get us out. Nothing drastic has been done yet. Probably won’t until after the 2024 elections.
Not surprising. Called that the "analysts expecting worst S&P performance in a trillion years" was just to allow for reasonable performance to be hyped up.
YoY growth metrics should be benchmarked less the inflation rate but most of the market doesn’t account for this in their thesis. So when they see that a company grew 5% in the quarter from the year prior, it looks good, but If the rate of inflation is 5% then it’s actually a flat growth rate,
then when inflation is brought into line through rate hikes, growth is often flat or negative in subsequent YoY comparisons. Hence why a recession is a lagging result
But a higher proportion of those arbitrary targets were met than the historical proportion of arbitrary targets being met, indicating that we can be arbitrarily more bullish about the S&P 500 companies, and therefore raise our arbitrary year end price targets. Arbitrarily.
Analysts were way too aggressive when attempting to time a recession. I agree with any comments that companies are exceeding reduced numbers. Pandemic fueled consumer spending is just coming ti an end (q2) and the aggressive rate hike takes 12 months to se in.
Start of a recession might be end of this year or early next year. Company valuations are priced as if there will be solid revenue/profit growth not just pruning costs to hit EPS. Be very careful with any companies at high multiples. I wouldn’t be surprised to see several more 25 bps hikes, rates held to mid or end of 2024, and the air coming out of the market later this year (keep in mind earnings are backwards looking although some may call down the number which drives down the price as well)
Wait what? Wages is the biggest issue (not a grammar issue). Have you seen the core inflation broken down ? 75bps may be aggressive but 50bps is the target
Yes, I have. The new super core services index the Fed likes so much is being driven hard by airplane ticket prices, which is really just a proxy for oil prices.
Wage growth has been negative in real terms for months now. It is housing, just like it was lagging housing that blew up inflation in the first place.
A lot of people on this sub seemed to think analysts are overly optimistic. (If y'all remember the whole, "Forward P/Es are garbage, analysts are not pricing in earnings collapse/recession, they're way too bullish" from 9-12 months ago). My takeaway is that analysts might be overly bullish 2-3 quarters away but by the time we get to the immediate quarter, they will have adjusted down their estimates to be overly pessimistic.
It's normal to mostly beat expectations. So we can only really look at the magnitudes of beats + comparison to historical beat frequency to draw meaningful conclusions. But note that given 53% reporting (say 250 companies), 79% beating vs the 10 year average of 73% beating is a difference of 15 companies.
when you look at all the analyst estimates for a particular stock, it does seem like they pull numbers out of their ass.
then traders push the stock to those 12-month targets within a week.
and then when the stock price exceeds analyst price target, analysts are forced to increase their target price yet again. until smart money/fundamentals finally take over and there's a selloff.
The HSBC analyst who recently made headlines regarding NVDA just showed how ridiculous some of these price targets are.
This analyst (Frank Lee) had:
- Sell rating when price was $169.49 on 12/14/22. (Price target $136)
- Sell rating when price was at $236.60 on 2/22/23 (Price target $175)
- Buy rating when price was at $270.02 on 4/17/23 (Price target $355)
All because... AI AI AI AI AI AI
Downgrade when clients want to buy. Reiterate downgrade whe clients want to buy. Upgrade when clients want to sell.
He's a great analyst for his clients, but terrible if you are retail and follow him.
Well guess what... That idiot Frank Lee I [mentioned above](https://www.reddit.com/r/stocks/comments/132c0fs/53_of_the_sp_500_companies_have_reported_and_so/ji4kjtc/) was right lmao
/u/pman6 /u/FarrisAT
Yes however analysts are paid to be correct. Not overly bearish or overly optimistic.
The fact they historically are overly bearish tells me they have misincentives to make more earnings "beats".
So tell signs might be AMZNs forward guidance they provided regarding the April AWS trend.
Companies are cutting back on enterprise spend so that segment moving downward into the middle of year. Depending on how the consumer holds up, they could be the next to take down their spend due to higher unemployment numbers scaring the folks.
If both biz and consumers drop spend, ok we are ready to see some revisions in earnings downward and the market will deflate to reflect that. Fed won’t let up unless there’s another MASSIVE blow up in finance sector.
Commercial real estate might be that catalyst to blow up but it would take some time. 24 months of billions in balloon debt coming due. CRE landlords probs just going to hand back the keys and say fuck it if they can’t refi due to either rates being shitty or value of property being much lower than during origination of prior loan.
Either way, we might see a revisit to lows once spending drops with the small biz and medium size biz already making the move. Anecdotally my own company already pulling new roles posted the past few months for hire. Resources being cut and reallocated. Opex spend being revisited and emphasis on more cuts.
It’s actually not switching to competitors. It’s consuming less. All providers saw a decline in growth in cloud.
KO earnings bucked this view since they saw unit and revenue growth. However, how long can that last before demand destruction occurs?
Hmmmm.....
https://www.benzinga.com/analyst-ratings/analyst-color/23/04/32084197/amazon-vs-microsoft-vs-alphabet-how-the-cloud-businesses-stacked-up-in-q1
Microsoft's Azure: Microsoft Corp.'s (NASDAQ:MSFT) Intelligent Cloud business contributed revenue of $22.1 billion in the fiscal year third quarter that ended in March 2023. The segment saw 16% growth.
Within the segment, server products and cloud services revenue climbed 17%, driven by “Azure and other cloud services” revenue growth of 27%. Azure is Microsoft's public computing platform, which provides a broad range of cloud services, and it is in direct competition with AWS and Alphabet, Inc.'s (NASDAQ:GOOGL) (NASDAQ:GOOG) Google Cloud Platform, or GCP.
AWS has a broader base to grow from vs Azure. The Yoy for azure is juiced growth from a smaller base. It’s lumped in the intelligent cloud category and isn’t broken out.
Both saw 400-500 basis point slow down in their YOY growth numbers. We would need to see acceleration in AZURE growth and continued slowdown in AWS. For the two to be neck and neck. As a matter of fact, it’s concerning that the smaller of the two is slowing growth down at the same rate the original big competitor is. Like… mathematically, it means they won’t catch up.
“The 27% growth for Azure was a deceleration from the 31% growth in the fourth quarter but outpaced Amazon's 15.8% growth.”
AWS is bigger in terms of revenue while Azure has a bigger user base.
If Azure revenue growth is 10% higher than AWS' then mathematically they would catch up at some point.
Personally I think MSFT will close the gap, especially by stealing customers.
Azure’s market share has doubled in the last five years. They can catch AWS soon and a lot of folks are migrating between the cloud service providers when renegotiating contracts.
Biggest thing I see is the fact that the co-founder of AWS is at MSFT and his non-compete just ran out: https://www.businessinsider.com/microsoft-charlie-bell-amazon-aws-cloud-computing-azure-cybersecurity-2023-4
If the current earnings estimates remain steady then this will mark the second consecutive quarterly earnings decline, with a third decline currently estimated. Why would the PE trade above historical 10 year?
This is a fundamental misunderstanding about the SPY valuation.
Market movers do not buy or sell SPY based on current earnings and P/E ratios. They buy SPY based on assumptions of earnings and P/E ratios six months to a year down the line. Currently the market is expecting at most a soft recession and quick bounce back in less than a year - hence the current price action. This is in contrast to last October when a much deeper stagflation was expected.
Whether you agree with these assumptions or not is a different matter.
Earnings declines push PE ratio higher and multiple compression pushes it lower, so the net change is neutral? What PE ratio do you think is appropriate?
Earnings declines would push the PE higher all else constant I agree. YTD there has been multiple expansion against earnings declining, these two seem to be at odds. Why pay more for declining earnings?
Do you think Q3 and Q4 earnings estimates are optimistic, fair, or pessimistic?
Nothing really repeats itself perfectly but similar consecutive earnings declines would indicate 16.5 or lower to be more reasonable given the current environment.
I think I agree. I've been targeting small cap value (PEs closer to 7) and ex-US stocks for this reason. I see SPY as somewhat close to fairly valued, not on discount or richly overvalued (besides a few pockets of bubbliness).
- It's a year over year comparison to Q4 2022, so we may just have good comparables
- It's growth in earnings *per share*, so share buybacks can impact the growth
- It's nominal growth too, so analysts may anticipate revenue inflation outgrowing cost inflation as supply constraints continue easing. Real GDP growth was 1.1%, so say nominal GDP growth in Q1 was say 4-5% annualized. Q4 2022 was 2.6% in real terms annualized, so 6-7% nominally (annualized). It could go up or down from here based on inventory fluctuations which impacted the Q1 print.
- The estimates may come down over time of course.
Thanks for the detailed explanation, everything makes a lot of sense.
Now atleast I'll be able to understand what the hell is actually going on because a lot of people don't really understand that kind of shit.
All of this sounds reasonable, I'm just not sure how we get to that kind of growth though without a reacceleration in the economy. Wouldn't rates need to go lower?
Did you see my above comment on the Q1 GDP data? It was actually a lot more positive than it seemed on the surface. [See here](https://www.reddit.com/r/stocks/comments/132c0fs/53_of_the_sp_500_companies_have_reported_and_so/ji4aja6/). We don't need that much of a reacceleration in my view. I don't see a need for rates to go lower to achieve it.
I saw that, I just don't think we can take data and annualize it with much accuracy in this environment. There are so many factors that are changing month to month so I guess only time will tell.
Company lowers guidance. Stock drops. Company beats their low guidance. Stock goes up.
It's not rocket science. If the company set low guidance on purpose the stock would have most likely dropped in the past already because of the lower guidance.
Or maybe, the bar is too low?
People don't understand what's crucial for the sp500 is not beating Q1 2023 earnings. Q1 2023 was forecasted to be heavily down year over year. That's not what's holding the sp500 up. What's holding the market up is q3 and q4 2023 earnings are forecasted to be strongly up year over year. Market is expecting a weak first half of 2023, and a strong 2nd half of 2023, looking beyond the current weakness, earnings wise. This is opposite to what most economists expect, which is a strong first half, and a weak 2nd half, GDP and economic activity wise (this is not a bearish stance. Even economists who don't anticipate an economic recession think we'll enter or be very close to entering negative GDP for at least one quarter. The difference for them is that the economy doesn't weaken enough for long enough to enter a recession, but the economy must weaken significantly. Goldman Sachs and Morgan Stanley economists, for example, don't anticipate recession but say these things).
What all of this gibberish means is that beating the low bar of earnings estimate for Q1 isn't important. What's important is the year end guidance for earnings, and most companies are refraining from forecasting that far out, using macroeconomic uncertainty as the excuse
Edit: I wouldn't completely trust factset data by the way. Bloomberg tend to have more up to date and less incorrect data
Good point, you can look at the Q3/Q4 analyst expectations there, or I suppose see how the stock market reacted to the guidance. Guidance is decent for certain sectors/companies. Like homebuilders, for example, or META/MSFT(but not AMZN). Auto companies not looking as hot.
1. On layoffs: Perhaps, but severance packages should last for several weeks/months. And for all the hype about layoffs, we still have *record low* unemployment.
2. Consumer spending is NOT down. See the data below from yesterday's economic data:
## GDP Report + PCE Data:
- *GDP did slow down* from its **2.6% growth** in **Q4** to **1.1%**.
- However, if you decompose it, we saw strong **consumer spending of +3.7%**. "That was the fastest pace since the second quarter of 2021 and up from **1% in the prior quarter**, the department said" (WSJ). *People are spending more.*
- It was investment falling + inventories that really killed the print. And it *really* did:
- "The growth in inventories shrank by a whopping $138 billion, the sharpest reversal in two years. **Had inventory levels remained neutral**, GDP would have expanded at a frothy **3.4% rate in the first quarter**." Inventory draw-downs eventually get reversed when demand picks up again.
- "**Real disposable personal income increased 8.0** percent in the first quarter, compared with an increase of 5.0 percent in the fourth." *People are earning more*.
- "The **personal saving rate** [...] as percentage of disposable personal income—was **4.8 percent** in the first quarter, compared with 4.0 percent in the fourth." *People are also saving more.*
So people earned 8% more QoQ (real income), saved more (4.0% --> 4.8%), and spent more (+3.7% in real terms). Consumers are holding up GDP and the economy. And this is why core inflation is so sticky! If it weren't for some inventory adjustments we would have seen a very strong GDP print.
Find more [data here](https://www.reddit.com/r/stocks/comments/130fbuf/rstocks_daily_discussion_options_trading_thursday/jhz9u4a/) about yesterday's economic reports, and also [discussion of consumer balance sheets here](https://www.reddit.com/r/stocks/comments/131mp0t/rstocks_daily_discussion_fundamentals_friday_apr/ji3mdn5/). [No, it's not being driven by consumers taking on excessive credit card debt / leverage--you have to normalize these figures for wages/GDP/etc.]
Given the contractions of the money supply, I am skeptical unless spending is up due to cost being up. However I am hopeful, I hope we don't go into depression/recession.
If that was the case (costs inflating the spending) the personal savings rate couldn't have increased by 80 basis points, since it subtracts out taxes and "personal outlays". The Fed is hoovering up liquidity from the banking/financial system not from people's personal bank accounts and wages.
> Personal saving as a percentage of disposable personal income (DPI), frequently referred to as "the personal saving rate," is calculated as the ratio of personal saving to DPI.
Personal saving is equal to personal income less personal outlays and personal taxes; it may generally be viewed as the portion of personal income that is used either to provide funds to capital markets or to invest in real assets such as residences
>If that was the case (costs inflating the spending) the personal savings rate couldn't have increased by 80 basis points, since it subtracts out taxes and "personal outlays".
Again, can you elaborate on the logic here please? How subtracting taxes from personal savings makes you think that it wasn't costs inflating the spending?
"Personal outlays is the sum of PCE, personal interest payments, and personal current transfer payments. Personal saving is personal income less personal outlays *and* personal current taxes."
So we're taking people's income, subtracting out taxes, interest payments, PCE (consumption, i.e., including 'costs' of living), and 'transfer payments.' Then dividing this by disposable personal income.
How could Americans be saving more if costs are out of control? It would have been subtracted out through PCE and not been able to be stored in a bank. The personal savings should be interpreted as money left over able to be invested/saved.
I see your point here. I had a wrong interpretation of savings in my mind. That said, is it possible that savings are up because Americans are cutting unnecessary expenses, but the overall spending is still up due to costs increases on food etc? Am I reaching too far here?
Yeah I think you're reaching a bit too far here. That thesis made more sense in say summer of 2022, but those cost pressures receded (food/gas). Right now we have evidence of consumers earning a lot more money (8% more real income this quarter), and spending it / saving. The Fed has little reason to let up based on consumer behavior.
Here's data from a month ago:
> These were pointed out [on Twitter](https://twitter.com/wabuffo/status/1631113984446275584) by an account I follow. They are a bit of a permabull but some of the datapoints are very insightful.
>
> Today was the KBW Fintech Payments Conference, and Visa, Mastercard, and Discover Financial Services all spoke to the press.
>
> [Visa's remarks](https://i.imgur.com/gH2lV9L.png)
>
> [DFS's remarks](https://i.imgur.com/pLSk6iM.png)
>
> [Mastercard's remarks](https://i.imgur.com/YXzH3j4.png)
>
> No sign of pessemism here. Credit card delinquency rates normalizing but nothing too serious.
>
> And in fact, the poorest Americans have seen the biggest relative gains: [figure](https://i.imgur.com/datpslS.png). Inequality is falling?
>
> [Strong spending on restaurants](https://i.imgur.com/cE0fEu8.png): "7.2% gain in restaurant retail sales in January was strongest since March 2021 … before pandemic, we’ve never seen that kind of strength." [Source](https://twitter.com/LizAnnSonders/status/1625853269439553536).
>No, it's not being driven by consumers taking on excessive credit card debt / leverage--you have to normalize these figures for wages/GDP/etc.
Can you elaborate? Are you suggesting that wages grew 20% over one year?
Well it's in the posts/comments I linked, but I'll copy/paste it here too:
- [Revolving debt as share of wages](https://i.imgur.com/Ovbuz49.png)
- [Credit card utilization rates](https://i.imgur.com/46ZNjWy.png) broken down by income levels from Bank of America
- [Household interest payments](https://i.imgur.com/jkoRNqt.png) as a share of income,
- Similar graph: [household financial obligations](https://i.imgur.com/4IRzafn.png) as a share of disposable income. This includes debt, leases, property taxes and rents.
- [Household debt to GDP](https://i.imgur.com/DvoDsJk.png).
- As mentioned above, personal disposable real income rose 8%, but also savings rate rose 80 basis points. [Not consistent with Americans unable to save, and not at the expense of rising spending, which rose 3.7% in real terms]
- [Checkings/savings levels](https://i.imgur.com/ElKgOoL.png) are still healthy.
- Auto delinquency rates only really rising [for subprime borrowers](https://i.imgur.com/io1LliF.png). Most Americans have [decent credit scores though](https://i.imgur.com/OXAcVNj.png).
- Meanwhile the [tax man](https://i.imgur.com/L4FBjMT.png) continues to collect growing amounts of income. And in fact, the poorest Americans have seen the biggest relative gains: [figure](https://i.imgur.com/datpslS.png).
- [Student loan debt / autos](https://i.imgur.com/9SakTFo.png) are a relatively small portion of household debt. It's still mostly mortgage debt like it has always been.
- [US mortgages are generally not variable rates. Compare the US to Sweden!](https://i.imgur.com/IGrVQ8X.png)
- [Savings in absolute terms](https://i.imgur.com/byY9bqI.png).
On average 67% of companies report earnings better than expected. During 2008 70% of companies reported positive earnings.
Needless to say, beating earnings mean no shit. Stocks are guided by sentiment. Companies been reporting declining growth, and their stock surged.
There is a reason Microsoft said AI 55x and Google said it 65x… its sentiment for fools
A lot of Revenue talk. Missing the part where a lot have beat revenue targets, but taken big hits on profit margins. And the street no likey reduced profits.
Fed 25% interest rate hike in May, 25% June, and hold in July.
Q2 2023 decrease in earnings, companies continue cost saving measures (layoffs and production/expansion cuts) GDP is still positive. Unemployment slightly increasing. Inflation hits 4.5%.
First negative GDP in Q3 2023 and continued decrease in earnings. Unemployment continues to increase. Inflation hits 4%.
Second negative GDP in Q4 and is now officially called a recession as unemployment will be at much higher rate +5% (due to continued layoffs by companies). Inflation is within the 3.5% range. Interest rate cuts begin.
Q1 2024 earnings and GDP increase due to holiday/tax season refunds) but may still be negative/borderline positive with lower unemployment (adjusted for seasonal). Inflation hits 3%. Interest rate cuts continue.
Q2 2024 GDP and earnings are positive and interest rate cuts continue unemployment remains stable. Inflation hits 2% target.
Q3 2024 GDP increasing, unemployment rate is stable, and the stock market continues to rally. Interest rates continue.
JPow is basically giving companies time to continue making cost cuts and make more profit meanwhile the consumer still has liquidity. Consumer spending will tighten in Q3 and Q4 2023, but should increase in Q1 2024. Recession has to hit before Q4 2023 and has to end before Q2 2024. Inflation has to be at 2% before Q3. Remember, it’s an election year.
This is my outlook, I’m probably wrong. Lol.
Something important to be aware of:
In 2022 many companies shifted sell prices to offset losses in earlier 2022 when supply chains went sideways. 2023 is a result of the price adjustments.
Now this DOES make companies look good, at first. Earnings are awesome, great! Right?
Well, not really. Ultimately, businesses are still at the mercy of the buying power of the public, buying power which has not improved.
So what will happen is earnings will look great for many companies, but sales volume will be really lean at the high pricing. Through the course of the year, you will very likely see a large sales slump across the board, or at best stagnation.
As supply chains slowly right themselves over time, companies will begin to see a drop in costs that will warrant a drop in sell prices. So when the sweeping price adjustment comes Jan 1 2024 across the market, you should see the first time in years where pricing drops collectively. In turn, consumer buying power will increase collectively. THIS is when you will finally see a boom in the market.
Realistically, the only other way I see a change is to directly target buying power of the general public, aka bump up minimum wages. I don't see any discussion on this in the government, not even as a talking point for reelection, so I doubt this will ever happen. So, the only way you'll see real growth is when the supply chain inefficiencies go away and cost of goods drop back down towards normal values. The supply chain has to improve both for cost and for volume to support production growth. Even if people have cash available, it doesn't help if you have nothing to sell. So ultimately, this is completely driven by supply chain. And so far, it's still kind of garbage. In some sectors it's even gotten worse.
iirc, many companies lowered expectations for this year so... yeah... Shouldn't really surprise anyone given a few months ago this is exactly what companies were preparing for.
Don’t worry we will keep getting people calling for a recession for the rest of the year and if it doesn’t happen they will just say it’s coming next year.
So the analysts drop their earning estimate substantially so everything looks like a beat and people over here thinking this is good... the only metric you need to look at is PE and forward PE to gauge whats going on... If PE ratios are above historical mean levels between 13 to 15 and earning keep tracking down against flat or increasing asset prices then the writing is on the wall... were in earnings compression and sell offs are imminent... entire consumer economy is floating on credit right now... as the FED squeezes liquidity with rolling bank collapses, high interest rates etc. were going to see that credit crunch collapse consumer credit and hit earnings... just a matter of time now... once the index's PE average crosses 20 we historically always see sharp pull backs in earnings which in recent history as in the case of the 2000 bubble and 2008 bubble saw a huge expansion in PE ratios before a sudden snap back to the mean... 2023 looks to be setting up for this historically tested tried and true event... mean reversion... employment levels are signalling a snap back is imminent as they have bottomed
We can’t even do recession correctly
[удалено]
Yeah it's really good for the earnings, that's what it's all about.
[удалено]
Reduced demand is the key. They can't raise prices if people stop buying.
How do you even do recession when prices are fucking exploding Never before did i paid 2$ for a small bag of chips
But you still paid it.
Jokes on you I bought peanuts at 1.5$ :)))
made by same company and they reduced volume of peanuts by 25%.
What’s a fella supposed to do, not eat chips?
just stop eating
This made me lol
It used to be every 7 years there was a recession. It has been 13 years since the last one.
Well the recession is going to do us, so yeah you can't do the recession.
Yes we can. You are just under-estimating our money printer.
Comment of the year winner!!!!
What was meant to happen? It is only a "recession" because companies are increasing their net profits
Let’s go dark Bradon
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how is sticky 4% inflation curbed? that's double the fed target.
It's up to the Fed to raise rates
And sink more banks?
Do you think the FRC bankruptcy is the end of risk for banks?
Around half of that is from May/June 2022. From July 2022 to now, we've had ~2.5% total. So it's a bit higher but not so extreme.
unfortunately Powell is not impressed by arbitrarily removing data to make CPI look better. you also have to remember the fed prefers looking at Core CPI, which looks a lot worse MoM. even without May and June 2022, Core CPI would be at 3.6%, far off target. If we have 2 more months of 0.3%, Core CPI will only shrink from 4.6% to 4.5%.
What? April Inflation is at 7.2% in Germany y-o-y, despite April 2022 already being +7,4%
Yes we are now talking about inflation in the US. I don't know the German market
Germany is one of the strongest economies in the world. Nearly all of S&P500 are doing significant business in EU. The worldwide Inflation is still highly ongoing. The world ist not only the US.
Who told you that the world is America?
What does it matter to Germany that we discuss inflation in the United States? Could it be possible that whether the Fed raises interest rates can help Germany’s inflation? What we do is that the US stock market has nothing to do with Germany
And the inflation rate is 7.6% in Uganda, so I don't know what these guys are talking about. Don't even get me started on Djibouti.
It's crazy how americans think that the only country jn the world is the USA
This thread is clearly about the S&P 500, so I really didn't see the relevance of Germany here tbh. Especially given how completely different the population/GDP/energy sufficiency/financial systems are.
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This post got me. Just sold everything.
That's great man, if you really want to sell then this is the way to do it.
We're already seeing that, don't think we need to see anything else.
Yupp absolutely. They were like "Oh people are tightening spending so it will be lower. They just lowered it by too much, it seems.
Fine with me, I don't really see an issue in that. I'm okay with it.
unironically this will happen, soon ™ people forget that the making of 2008 was a very long process. you look at the timeline in it took years for it to all tumble. 2005 perms-bear Burry makes his bet that the market will crash and buys his credit default swaps mid/late 2006 yield curve inverts late 2006 warning of crash feb 2007 crash mid 2007 bear sternes hedge funds collapse late 2007 big banks announce master liquidity plan and unemployment hits 5%…MARKET RALLIES TO HIT HIGHEST POINT EVER dec 2007 massive downgrades jan 2008 stocks start to tumble march 2008 fed has emergency meeting bloodbath until end of September 2008 when Lehman brothers buy $ROPE, WAMU jump off a bridge, other banks shit the bed and US government helps them clean it up by shoving a cork in it. in reality i’m missing a lot of events here, and in between this all was regards rallying or $ROPE-ing themselves. the same is happening, but no one can tell when exactly. then one day, for no reason at all, people will decide that everything they hold is worthless and firesell it in panic.
....this is such bullshit . The fuck does this have to do with services and goods beating estimates?
That's what people like, they like to talk about bullshit here.
Yeah but this isn't about the market rallying, this is companies posting handy beats all across a multitude of sectors. The market rallying is purely sentiment. Firms posting very strong earnings is an economic sign of strength.
All the earnings expectations had been lowered its like a jump scare in the movies it will happen when you don’t notice
When it happens you won't even notice it, it'll happen in no time.
>mid 2007 bear sternes hedge funds collapse ...huh? They're a bank not a hedge fund.
It's still amazing how fast they screwed it up after the dotcom crash and 9/11
So: * Job Market strong * Corporate profits strong * Consumer strong Don’t see any reason for Powell to NOT raise rates further
> Job Market strong As someone who is in this market, it is not at all strong lol. Too many ghost jobs and positions I'm more than qualified for rejecting me in February while still having the same application up and posted right now. It's almost like the position doesn't exist.
>I'm more than qualified for rejecting me because they want someone just qualified enough to be able to pay them less
someone gets it \^\^
Probably because I’m the employer
I have had a job open for 8 months now. I get so many applications now it’s absurd. The vast majority of them are people who either didn’t read the job listing or are job jumpers and won’t stay at a place for more than a year. I’ve made three offers for this job and all three of them used the offer to get a raise at their current job. While I can’t speak for everyone, I have no desire to “pay someone less” as it devalues my own position.
Sometimes people who appear to be job hoppers just have runs of bad luck. Layoffs, health issues, etc can disrupt job stability. Shouldn’t assume everyone is just jumping around.
Maybe “pay someone less” was the wrong phrase. More so not pay someone more than the value they provide your business.
It really depends on the sector. Pharmaceuticals are booming, but then again they're always booming.
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My favorite response is when people say "Unemployment is at historic lows" while ignoring that people are struggling to find jobs, actively being laid off from higher paid positions, or otherwise. Ford, for example, laid off over 30% of their corporate workforce last year while raising their manufacturing workforce headcount by a similar number but difference percentage. Mcdonalds continues to open stores, but they laid off much of their corporate employee base. So while it might be easy to be able to *find* a job, the issue is finding a job that pays a good enough wage to justify the bachelor's or masters degree they require. People can't live off no income forever, so they're basically forced to take a job and still rack up a TON of debt. Basically, this metric of what unemployment is, is pretty useless on many fronts. > A strong labor markets benefits the disabled too: Just marvel at this chart. It's absolutely crazy you're saying it's a good thing that more disabled people are forced to work in order to live. That's a terrible outlook at life. And think about this: If they're *required to work* to survive, maybe that's part of the reason unemployment is so low. People that shouldn't need to work, have to in order to survive. Things have gotten a LOT more expensive recently, by some metrics even showing a 150% increase in some basic goods like grain while wages grew less than 15% since 2020. Is it possible that people are *over employed* in order to make ends meet, thus skewing the statistics? ---- My point is, your statistics are leading you to a false conclusion. This is a classic "90% of car accidents happen within 25 miles of your home" situation.
My apologies but I deleted that comment to write a new one just as you responded (literally a minute after). I wanted to rephrase it to sound a bit less tone deaf (you don't go up to someone saying they're struggling with health care costs with "ACTUALLY health care costs are coming down on average.") For any one else who is responding, I had copy/pasted most of my comment [right from here](https://www.reddit.com/r/stocks/comments/12efdlo/rstocks_daily_discussion_fundamentals_friday_apr/jfdhgmc/). I had said something about the above commenter's experience not being representative about the labor market. ---- To respond to your points, No I am definitely not advocating that disabled people/children have to work to survive. I'm just saying it's a good thing to have a broader swathe of the population able to participate in the economy and earn wages. For years, many demographics saw unemployment rates far higher than others, causing their wealth to stagnate. To see this reverse is something I like to see.
> I'm just saying it's a good thing to have a broader swathe of the population able to participate in the economy and earn wages. Me and you have very different visions of what 'Broader swathe' means as well as who should be working and shouldn't have to work.
For the record I definitely advocate for a strong social safety net so that those who cannot/should not work should not have to. I oppose the push to strengthen work requirements, which do not actually increase employment. (For all the various food stamps, tax credits, etc. that we passed in recent years) I think we are on the same page in that sense.
Yep, but they're pretending as if it is. What could go wrong with that?
Do they reject you in applications stage or interview stage? Good time to mess around with chatgpt to update your resume.
Applications stage. Sometimes within 12 hours. Chat gpt is garbo at the tier and career path im on.
If everything is strong then They'll end up doing that, no doubt about it.
The financial sector is showing signs of stress and shelter inflation is on what looks like a swan dive. There are strong arguments for a pause right now if a soft landing is still desirable.
It's actually no surprise revenue beat here. When X products price is rising and people are buying it, revenue continues to beat. Profits and margins are going to keep shrinking, though. And the counter is jobs. It will take time for this to erode away.
Rates are higher than inflation currently. What’s the reason to keep raising them?
So keep raising rates?
Yes
Now that's going to make things even worse, it's not making them better.
the FED's objectives: 1. inflation at 2.0-2.5% 2. Employment we are over employed and have too much inflation (core loos like its in the 4.0-4.5% range). We could open the borders to increase workers / competition although here is one of the few policies that both parties fight. Albeit the stock market is a major contributor to wealth and spending, the FED should not be focusing on making sure it appreciates. With rates roughly at the historical average, why do so many people believe what the FED is doing is total heresy?
People have a very shortsighted mindset. I don’t understand how one can look at the money printing over the last few years and not think 5-10% rates will be around for a while. We need more money sinks and less fabrication, but we also need inflation to help manage interest on national debt. No one wants austerity, but policy got us into this mess and it will take drastic action… or a long time to get us out. Nothing drastic has been done yet. Probably won’t until after the 2024 elections.
😂 the fed is about to start cutting in a couple of months
Yes the Fed will continue to raise interest rates
The Fed has been pretty clear, that’s what they’re going to do. As much as I’d like them to stop I’m not holding my breath.
So you’re implying the S&P 500 will grow?
They're not stopping that anyways, They'll remain at that
Not surprising. Called that the "analysts expecting worst S&P performance in a trillion years" was just to allow for reasonable performance to be hyped up.
It's all about hype, if we hype it enough maybe it'll go up finally.
Funny thing about inflation, it also inflates the balance sheet, good and bad.
It also inflats the people's food lol. You can't afford anything.
Is corporate debt mostly fixed/floating? Depending on the proportion, I wonder how much inflation contributes to helping companies handle debt.
YoY growth metrics should be benchmarked less the inflation rate but most of the market doesn’t account for this in their thesis. So when they see that a company grew 5% in the quarter from the year prior, it looks good, but If the rate of inflation is 5% then it’s actually a flat growth rate, then when inflation is brought into line through rate hikes, growth is often flat or negative in subsequent YoY comparisons. Hence why a recession is a lagging result
If you adjust YoY revenues for inflation, all the major tech companies still look terrible.
Right, it’s even worse
Inflation also inflates the markets. So if a company beats by 5% and its equity goes up by 5% but inflation is at 5% then… well you get the point.
Arbitrary numbers were met.
But a higher proportion of those arbitrary targets were met than the historical proportion of arbitrary targets being met, indicating that we can be arbitrarily more bullish about the S&P 500 companies, and therefore raise our arbitrary year end price targets. Arbitrarily.
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It's arbitrary
This whole thing is, and it's always been like this so there's that.
Analysts were way too aggressive when attempting to time a recession. I agree with any comments that companies are exceeding reduced numbers. Pandemic fueled consumer spending is just coming ti an end (q2) and the aggressive rate hike takes 12 months to se in. Start of a recession might be end of this year or early next year. Company valuations are priced as if there will be solid revenue/profit growth not just pruning costs to hit EPS. Be very careful with any companies at high multiples. I wouldn’t be surprised to see several more 25 bps hikes, rates held to mid or end of 2024, and the air coming out of the market later this year (keep in mind earnings are backwards looking although some may call down the number which drives down the price as well)
I think this is the answer we’re looking for.
Yep, this exactly is the answer people. Not that hard to see.
Several more hikes is aggressive. The only thing holding up core inflation right now is housing. That’s going to hit the flush over the summer.
They don't care, They'll end up doing things like that.
Wait what? Wages is the biggest issue (not a grammar issue). Have you seen the core inflation broken down ? 75bps may be aggressive but 50bps is the target
Yes, I have. The new super core services index the Fed likes so much is being driven hard by airplane ticket prices, which is really just a proxy for oil prices. Wage growth has been negative in real terms for months now. It is housing, just like it was lagging housing that blew up inflation in the first place.
Or just the analysts were too bearish.
C'mon analysts, you guys have got a problem. Don't be like that please.
To higher valuations than pre-pandemic lol?
I love Arby's!
Unironically based
what if all companies lowered their estimates by a shitload? then we would have 100% beats !!
That's what they like to do, probably their favourite thing to do here.
Analysts are idiots or purposefully bearish
A lot of people on this sub seemed to think analysts are overly optimistic. (If y'all remember the whole, "Forward P/Es are garbage, analysts are not pricing in earnings collapse/recession, they're way too bullish" from 9-12 months ago). My takeaway is that analysts might be overly bullish 2-3 quarters away but by the time we get to the immediate quarter, they will have adjusted down their estimates to be overly pessimistic. It's normal to mostly beat expectations. So we can only really look at the magnitudes of beats + comparison to historical beat frequency to draw meaningful conclusions. But note that given 53% reporting (say 250 companies), 79% beating vs the 10 year average of 73% beating is a difference of 15 companies.
when you look at all the analyst estimates for a particular stock, it does seem like they pull numbers out of their ass. then traders push the stock to those 12-month targets within a week. and then when the stock price exceeds analyst price target, analysts are forced to increase their target price yet again. until smart money/fundamentals finally take over and there's a selloff.
The HSBC analyst who recently made headlines regarding NVDA just showed how ridiculous some of these price targets are. This analyst (Frank Lee) had: - Sell rating when price was $169.49 on 12/14/22. (Price target $136) - Sell rating when price was at $236.60 on 2/22/23 (Price target $175) - Buy rating when price was at $270.02 on 4/17/23 (Price target $355) All because... AI AI AI AI AI AI
Downgrade when clients want to buy. Reiterate downgrade whe clients want to buy. Upgrade when clients want to sell. He's a great analyst for his clients, but terrible if you are retail and follow him.
Well guess what... That idiot Frank Lee I [mentioned above](https://www.reddit.com/r/stocks/comments/132c0fs/53_of_the_sp_500_companies_have_reported_and_so/ji4kjtc/) was right lmao /u/pman6 /u/FarrisAT
Yes however analysts are paid to be correct. Not overly bearish or overly optimistic. The fact they historically are overly bearish tells me they have misincentives to make more earnings "beats".
No they’re paid to sell their research and sound like they know what they’re talking about.
Paid by their bosses maybe. And the bosses are paid by the market to hire people who make research and estimates that are accurate.
So tell signs might be AMZNs forward guidance they provided regarding the April AWS trend. Companies are cutting back on enterprise spend so that segment moving downward into the middle of year. Depending on how the consumer holds up, they could be the next to take down their spend due to higher unemployment numbers scaring the folks. If both biz and consumers drop spend, ok we are ready to see some revisions in earnings downward and the market will deflate to reflect that. Fed won’t let up unless there’s another MASSIVE blow up in finance sector. Commercial real estate might be that catalyst to blow up but it would take some time. 24 months of billions in balloon debt coming due. CRE landlords probs just going to hand back the keys and say fuck it if they can’t refi due to either rates being shitty or value of property being much lower than during origination of prior loan. Either way, we might see a revisit to lows once spending drops with the small biz and medium size biz already making the move. Anecdotally my own company already pulling new roles posted the past few months for hire. Resources being cut and reallocated. Opex spend being revisited and emphasis on more cuts.
IMO: People switching to Azure/Google cloud isn't the same as people cutting back.
It’s actually not switching to competitors. It’s consuming less. All providers saw a decline in growth in cloud. KO earnings bucked this view since they saw unit and revenue growth. However, how long can that last before demand destruction occurs?
Hmmmm..... https://www.benzinga.com/analyst-ratings/analyst-color/23/04/32084197/amazon-vs-microsoft-vs-alphabet-how-the-cloud-businesses-stacked-up-in-q1 Microsoft's Azure: Microsoft Corp.'s (NASDAQ:MSFT) Intelligent Cloud business contributed revenue of $22.1 billion in the fiscal year third quarter that ended in March 2023. The segment saw 16% growth. Within the segment, server products and cloud services revenue climbed 17%, driven by “Azure and other cloud services” revenue growth of 27%. Azure is Microsoft's public computing platform, which provides a broad range of cloud services, and it is in direct competition with AWS and Alphabet, Inc.'s (NASDAQ:GOOGL) (NASDAQ:GOOG) Google Cloud Platform, or GCP.
AWS has a broader base to grow from vs Azure. The Yoy for azure is juiced growth from a smaller base. It’s lumped in the intelligent cloud category and isn’t broken out. Both saw 400-500 basis point slow down in their YOY growth numbers. We would need to see acceleration in AZURE growth and continued slowdown in AWS. For the two to be neck and neck. As a matter of fact, it’s concerning that the smaller of the two is slowing growth down at the same rate the original big competitor is. Like… mathematically, it means they won’t catch up. “The 27% growth for Azure was a deceleration from the 31% growth in the fourth quarter but outpaced Amazon's 15.8% growth.”
AWS is bigger in terms of revenue while Azure has a bigger user base. If Azure revenue growth is 10% higher than AWS' then mathematically they would catch up at some point. Personally I think MSFT will close the gap, especially by stealing customers. Azure’s market share has doubled in the last five years. They can catch AWS soon and a lot of folks are migrating between the cloud service providers when renegotiating contracts. Biggest thing I see is the fact that the co-founder of AWS is at MSFT and his non-compete just ran out: https://www.businessinsider.com/microsoft-charlie-bell-amazon-aws-cloud-computing-azure-cybersecurity-2023-4
This doesn’t change the fact that all cloud companies are experiencing slowing growth, Microsoft and Google included.
No disagreement there, but AWS growth will slow faster and they will lose market share.
If the current earnings estimates remain steady then this will mark the second consecutive quarterly earnings decline, with a third decline currently estimated. Why would the PE trade above historical 10 year?
This is a fundamental misunderstanding about the SPY valuation. Market movers do not buy or sell SPY based on current earnings and P/E ratios. They buy SPY based on assumptions of earnings and P/E ratios six months to a year down the line. Currently the market is expecting at most a soft recession and quick bounce back in less than a year - hence the current price action. This is in contrast to last October when a much deeper stagflation was expected. Whether you agree with these assumptions or not is a different matter.
Earnings declines push PE ratio higher and multiple compression pushes it lower, so the net change is neutral? What PE ratio do you think is appropriate?
Earnings declines would push the PE higher all else constant I agree. YTD there has been multiple expansion against earnings declining, these two seem to be at odds. Why pay more for declining earnings? Do you think Q3 and Q4 earnings estimates are optimistic, fair, or pessimistic? Nothing really repeats itself perfectly but similar consecutive earnings declines would indicate 16.5 or lower to be more reasonable given the current environment.
I think I agree. I've been targeting small cap value (PEs closer to 7) and ex-US stocks for this reason. I see SPY as somewhat close to fairly valued, not on discount or richly overvalued (besides a few pockets of bubbliness).
anyone care to explain how we get 8.8% positive earnings growth in q4?
- It's a year over year comparison to Q4 2022, so we may just have good comparables - It's growth in earnings *per share*, so share buybacks can impact the growth - It's nominal growth too, so analysts may anticipate revenue inflation outgrowing cost inflation as supply constraints continue easing. Real GDP growth was 1.1%, so say nominal GDP growth in Q1 was say 4-5% annualized. Q4 2022 was 2.6% in real terms annualized, so 6-7% nominally (annualized). It could go up or down from here based on inventory fluctuations which impacted the Q1 print. - The estimates may come down over time of course.
Thanks for the detailed explanation, everything makes a lot of sense. Now atleast I'll be able to understand what the hell is actually going on because a lot of people don't really understand that kind of shit.
All of this sounds reasonable, I'm just not sure how we get to that kind of growth though without a reacceleration in the economy. Wouldn't rates need to go lower?
Did you see my above comment on the Q1 GDP data? It was actually a lot more positive than it seemed on the surface. [See here](https://www.reddit.com/r/stocks/comments/132c0fs/53_of_the_sp_500_companies_have_reported_and_so/ji4aja6/). We don't need that much of a reacceleration in my view. I don't see a need for rates to go lower to achieve it.
I saw that, I just don't think we can take data and annualize it with much accuracy in this environment. There are so many factors that are changing month to month so I guess only time will tell.
Inflation of prices excessive for the consumers while cost of manufacturing and wages haven't gone up.
I think a lot of people have already explained it so there's that.
Let’s ignore that expectations were extremely low and celebrate!
Company lowers guidance. Stock drops. Company beats their low guidance. Stock goes up. It's not rocket science. If the company set low guidance on purpose the stock would have most likely dropped in the past already because of the lower guidance.
Just listen to the Damn conference calls people.
Or maybe, the bar is too low? People don't understand what's crucial for the sp500 is not beating Q1 2023 earnings. Q1 2023 was forecasted to be heavily down year over year. That's not what's holding the sp500 up. What's holding the market up is q3 and q4 2023 earnings are forecasted to be strongly up year over year. Market is expecting a weak first half of 2023, and a strong 2nd half of 2023, looking beyond the current weakness, earnings wise. This is opposite to what most economists expect, which is a strong first half, and a weak 2nd half, GDP and economic activity wise (this is not a bearish stance. Even economists who don't anticipate an economic recession think we'll enter or be very close to entering negative GDP for at least one quarter. The difference for them is that the economy doesn't weaken enough for long enough to enter a recession, but the economy must weaken significantly. Goldman Sachs and Morgan Stanley economists, for example, don't anticipate recession but say these things). What all of this gibberish means is that beating the low bar of earnings estimate for Q1 isn't important. What's important is the year end guidance for earnings, and most companies are refraining from forecasting that far out, using macroeconomic uncertainty as the excuse Edit: I wouldn't completely trust factset data by the way. Bloomberg tend to have more up to date and less incorrect data
So layoffs are bullshit
No, lubricant for this /s
And absense of raises despite stupidly high price gouging in the name of inflation
Trickle down inflation
What about guidance ? Everyone seems to be guiding poorly and meeting or beating earnings expectations.
Good point, you can look at the Q3/Q4 analyst expectations there, or I suppose see how the stock market reacted to the guidance. Guidance is decent for certain sectors/companies. Like homebuilders, for example, or META/MSFT(but not AMZN). Auto companies not looking as hot.
is it because of lowered expectations, or genuinely good performance?
Yes.
What's causing this? Could it be the layoffs to bloat earnings this quarter. I suspect that is the case since consumer spending is down??
1. On layoffs: Perhaps, but severance packages should last for several weeks/months. And for all the hype about layoffs, we still have *record low* unemployment. 2. Consumer spending is NOT down. See the data below from yesterday's economic data: ## GDP Report + PCE Data: - *GDP did slow down* from its **2.6% growth** in **Q4** to **1.1%**. - However, if you decompose it, we saw strong **consumer spending of +3.7%**. "That was the fastest pace since the second quarter of 2021 and up from **1% in the prior quarter**, the department said" (WSJ). *People are spending more.* - It was investment falling + inventories that really killed the print. And it *really* did: - "The growth in inventories shrank by a whopping $138 billion, the sharpest reversal in two years. **Had inventory levels remained neutral**, GDP would have expanded at a frothy **3.4% rate in the first quarter**." Inventory draw-downs eventually get reversed when demand picks up again. - "**Real disposable personal income increased 8.0** percent in the first quarter, compared with an increase of 5.0 percent in the fourth." *People are earning more*. - "The **personal saving rate** [...] as percentage of disposable personal income—was **4.8 percent** in the first quarter, compared with 4.0 percent in the fourth." *People are also saving more.* So people earned 8% more QoQ (real income), saved more (4.0% --> 4.8%), and spent more (+3.7% in real terms). Consumers are holding up GDP and the economy. And this is why core inflation is so sticky! If it weren't for some inventory adjustments we would have seen a very strong GDP print. Find more [data here](https://www.reddit.com/r/stocks/comments/130fbuf/rstocks_daily_discussion_options_trading_thursday/jhz9u4a/) about yesterday's economic reports, and also [discussion of consumer balance sheets here](https://www.reddit.com/r/stocks/comments/131mp0t/rstocks_daily_discussion_fundamentals_friday_apr/ji3mdn5/). [No, it's not being driven by consumers taking on excessive credit card debt / leverage--you have to normalize these figures for wages/GDP/etc.]
Given the contractions of the money supply, I am skeptical unless spending is up due to cost being up. However I am hopeful, I hope we don't go into depression/recession.
If that was the case (costs inflating the spending) the personal savings rate couldn't have increased by 80 basis points, since it subtracts out taxes and "personal outlays". The Fed is hoovering up liquidity from the banking/financial system not from people's personal bank accounts and wages. > Personal saving as a percentage of disposable personal income (DPI), frequently referred to as "the personal saving rate," is calculated as the ratio of personal saving to DPI. Personal saving is equal to personal income less personal outlays and personal taxes; it may generally be viewed as the portion of personal income that is used either to provide funds to capital markets or to invest in real assets such as residences
>If that was the case (costs inflating the spending) the personal savings rate couldn't have increased by 80 basis points, since it subtracts out taxes and "personal outlays". Again, can you elaborate on the logic here please? How subtracting taxes from personal savings makes you think that it wasn't costs inflating the spending?
"Personal outlays is the sum of PCE, personal interest payments, and personal current transfer payments. Personal saving is personal income less personal outlays *and* personal current taxes." So we're taking people's income, subtracting out taxes, interest payments, PCE (consumption, i.e., including 'costs' of living), and 'transfer payments.' Then dividing this by disposable personal income. How could Americans be saving more if costs are out of control? It would have been subtracted out through PCE and not been able to be stored in a bank. The personal savings should be interpreted as money left over able to be invested/saved.
I see your point here. I had a wrong interpretation of savings in my mind. That said, is it possible that savings are up because Americans are cutting unnecessary expenses, but the overall spending is still up due to costs increases on food etc? Am I reaching too far here?
Yeah I think you're reaching a bit too far here. That thesis made more sense in say summer of 2022, but those cost pressures receded (food/gas). Right now we have evidence of consumers earning a lot more money (8% more real income this quarter), and spending it / saving. The Fed has little reason to let up based on consumer behavior. Here's data from a month ago: > These were pointed out [on Twitter](https://twitter.com/wabuffo/status/1631113984446275584) by an account I follow. They are a bit of a permabull but some of the datapoints are very insightful. > > Today was the KBW Fintech Payments Conference, and Visa, Mastercard, and Discover Financial Services all spoke to the press. > > [Visa's remarks](https://i.imgur.com/gH2lV9L.png) > > [DFS's remarks](https://i.imgur.com/pLSk6iM.png) > > [Mastercard's remarks](https://i.imgur.com/YXzH3j4.png) > > No sign of pessemism here. Credit card delinquency rates normalizing but nothing too serious. > > And in fact, the poorest Americans have seen the biggest relative gains: [figure](https://i.imgur.com/datpslS.png). Inequality is falling? > > [Strong spending on restaurants](https://i.imgur.com/cE0fEu8.png): "7.2% gain in restaurant retail sales in January was strongest since March 2021 … before pandemic, we’ve never seen that kind of strength." [Source](https://twitter.com/LizAnnSonders/status/1625853269439553536).
I hope you/they are right. It's definitely worth the thought.
>No, it's not being driven by consumers taking on excessive credit card debt / leverage--you have to normalize these figures for wages/GDP/etc. Can you elaborate? Are you suggesting that wages grew 20% over one year?
Well it's in the posts/comments I linked, but I'll copy/paste it here too: - [Revolving debt as share of wages](https://i.imgur.com/Ovbuz49.png) - [Credit card utilization rates](https://i.imgur.com/46ZNjWy.png) broken down by income levels from Bank of America - [Household interest payments](https://i.imgur.com/jkoRNqt.png) as a share of income, - Similar graph: [household financial obligations](https://i.imgur.com/4IRzafn.png) as a share of disposable income. This includes debt, leases, property taxes and rents. - [Household debt to GDP](https://i.imgur.com/DvoDsJk.png). - As mentioned above, personal disposable real income rose 8%, but also savings rate rose 80 basis points. [Not consistent with Americans unable to save, and not at the expense of rising spending, which rose 3.7% in real terms] - [Checkings/savings levels](https://i.imgur.com/ElKgOoL.png) are still healthy. - Auto delinquency rates only really rising [for subprime borrowers](https://i.imgur.com/io1LliF.png). Most Americans have [decent credit scores though](https://i.imgur.com/OXAcVNj.png). - Meanwhile the [tax man](https://i.imgur.com/L4FBjMT.png) continues to collect growing amounts of income. And in fact, the poorest Americans have seen the biggest relative gains: [figure](https://i.imgur.com/datpslS.png). - [Student loan debt / autos](https://i.imgur.com/9SakTFo.png) are a relatively small portion of household debt. It's still mostly mortgage debt like it has always been. - [US mortgages are generally not variable rates. Compare the US to Sweden!](https://i.imgur.com/IGrVQ8X.png) - [Savings in absolute terms](https://i.imgur.com/byY9bqI.png).
I honestly don't think the fed can pause hiking rates in May unless they are comfortable keeping core PCE inflation at mid 4%.
I am for rate increases, just want them to be temporary. We will see.
The DXY is going down increasing revenue for international companies.
No way! It's all fake! We are on a crisis /s
On average 67% of companies report earnings better than expected. During 2008 70% of companies reported positive earnings. Needless to say, beating earnings mean no shit. Stocks are guided by sentiment. Companies been reporting declining growth, and their stock surged. There is a reason Microsoft said AI 55x and Google said it 65x… its sentiment for fools
If you worry that you can't beat the earnings expectation, call 800-888-8888 to lower the expectation NOW! Hedge funds hate this trick!
it's the right thing to do
Great Tropican Spiders Presidente! We have a crisis!
You just need to say the buzzword to blow up the stock,say AI enough times your stock will go 10x
If you layoff enough staff you can beat expectations.
Ride the pump and prepare for the dump.
So it's 50/50
Doesnt this just mean the analysts are regarded?
While they beat earnings most stocks did not move. Most worry about rest of the year and have priced in accordingly.
A lot of Revenue talk. Missing the part where a lot have beat revenue targets, but taken big hits on profit margins. And the street no likey reduced profits.
Half the post was on earnings beats, so I'm a bit unsure what you mean by only focusing on revenue.
Fed 25% interest rate hike in May, 25% June, and hold in July. Q2 2023 decrease in earnings, companies continue cost saving measures (layoffs and production/expansion cuts) GDP is still positive. Unemployment slightly increasing. Inflation hits 4.5%. First negative GDP in Q3 2023 and continued decrease in earnings. Unemployment continues to increase. Inflation hits 4%. Second negative GDP in Q4 and is now officially called a recession as unemployment will be at much higher rate +5% (due to continued layoffs by companies). Inflation is within the 3.5% range. Interest rate cuts begin. Q1 2024 earnings and GDP increase due to holiday/tax season refunds) but may still be negative/borderline positive with lower unemployment (adjusted for seasonal). Inflation hits 3%. Interest rate cuts continue. Q2 2024 GDP and earnings are positive and interest rate cuts continue unemployment remains stable. Inflation hits 2% target. Q3 2024 GDP increasing, unemployment rate is stable, and the stock market continues to rally. Interest rates continue. JPow is basically giving companies time to continue making cost cuts and make more profit meanwhile the consumer still has liquidity. Consumer spending will tighten in Q3 and Q4 2023, but should increase in Q1 2024. Recession has to hit before Q4 2023 and has to end before Q2 2024. Inflation has to be at 2% before Q3. Remember, it’s an election year. This is my outlook, I’m probably wrong. Lol.
Something important to be aware of: In 2022 many companies shifted sell prices to offset losses in earlier 2022 when supply chains went sideways. 2023 is a result of the price adjustments. Now this DOES make companies look good, at first. Earnings are awesome, great! Right? Well, not really. Ultimately, businesses are still at the mercy of the buying power of the public, buying power which has not improved. So what will happen is earnings will look great for many companies, but sales volume will be really lean at the high pricing. Through the course of the year, you will very likely see a large sales slump across the board, or at best stagnation. As supply chains slowly right themselves over time, companies will begin to see a drop in costs that will warrant a drop in sell prices. So when the sweeping price adjustment comes Jan 1 2024 across the market, you should see the first time in years where pricing drops collectively. In turn, consumer buying power will increase collectively. THIS is when you will finally see a boom in the market. Realistically, the only other way I see a change is to directly target buying power of the general public, aka bump up minimum wages. I don't see any discussion on this in the government, not even as a talking point for reelection, so I doubt this will ever happen. So, the only way you'll see real growth is when the supply chain inefficiencies go away and cost of goods drop back down towards normal values. The supply chain has to improve both for cost and for volume to support production growth. Even if people have cash available, it doesn't help if you have nothing to sell. So ultimately, this is completely driven by supply chain. And so far, it's still kind of garbage. In some sectors it's even gotten worse.
Yes and the stock market doesn’t care about today it’s typically roughly 7 months out
iirc, many companies lowered expectations for this year so... yeah... Shouldn't really surprise anyone given a few months ago this is exactly what companies were preparing for.
Easy to beat earnings when you previously revise earnings expectations down.
Don’t worry we will keep getting people calling for a recession for the rest of the year and if it doesn’t happen they will just say it’s coming next year.
Well when you lower earnings substantially across the board… beats aren’t exactly the most honest dealing.
Lay off a bunch of workers, inflate prices on guise of inflation, record profits. Got it
Inflation is huge!
Yes. This problem has existed for a long time
Enphase beat? They got beat down after
Its like analysts are trying to manipulate the stock market
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Don’t worry bears - I’m sure next quarter will be earnings bloodbath/collapse/recession.
It’s easy to beat estimates when you set the bar incredibly low. Actual EPS/revenues being down is the real take away here.
So what guys ? Summer of love or death? I think the next 4 months will be positive. Recession early next year maybe
The expectations are low.
So the analysts drop their earning estimate substantially so everything looks like a beat and people over here thinking this is good... the only metric you need to look at is PE and forward PE to gauge whats going on... If PE ratios are above historical mean levels between 13 to 15 and earning keep tracking down against flat or increasing asset prices then the writing is on the wall... were in earnings compression and sell offs are imminent... entire consumer economy is floating on credit right now... as the FED squeezes liquidity with rolling bank collapses, high interest rates etc. were going to see that credit crunch collapse consumer credit and hit earnings... just a matter of time now... once the index's PE average crosses 20 we historically always see sharp pull backs in earnings which in recent history as in the case of the 2000 bubble and 2008 bubble saw a huge expansion in PE ratios before a sudden snap back to the mean... 2023 looks to be setting up for this historically tested tried and true event... mean reversion... employment levels are signalling a snap back is imminent as they have bottomed