[Asia Economy New York=Special Correspondent Joselgina] As major companies such as JP Morgan and Wells Fargo prepare to announce their earnings this week, tension is rising on Wall Street. It is expected that the earnings growth rate of S&P 500 listed companies in the fourth quarter of last year will decline for the first time since the third quarter of 2020, when the impact of the pandemic was significant.
According to FactSet on the 8th (local time), the net profit of S&P 500 listed companies in the fourth quarter of last year is estimated to decrease by 4.1% compared to the same period last year. This is the first expected negative growth since the third quarter of 2020. This contrasts with the 31% growth recorded by S&P 500 listed companies one year earlier. The Wall Street Journal (WSJ) reported, "This is the first time quarterly net profit decline is expected since the peak of the COVID-19 pandemic," adding, "The New York stock market is also facing a major test." As of last September, FactSet's forecast for fourth-quarter net profit growth was 3.5%.
The current macro environment surrounding major companies is not positive. Despite the Federal Reserve's (Fed) consecutive interest rate hikes, inflation remains at a high level. This suggests concerns about entrenched high prices and that the Fed's tightening may last longer than expected. Additionally, signs of weakening consumer sentiment, which has supported the economy so far, have been confirmed, raising recession warning signals.
Timothy Chubb, Chief Investment Officer of asset management firm JIRA, said, "Investors have started to feel that we are heading toward a recession." By sector, energy, industrials, real estate, and utilities are expected to show positive growth, while consumer goods, telecommunications, finance, technology, healthcare, and materials are expected to record negative growth.
Wall Street will enter the full earnings announcement season starting on the 13th with major banks such as JP Morgan Chase, Bank of America (BoA), and Wells Fargo. Investors are closely watching last year's performance and this year's annual outlook of major companies, while also awaiting additional inflation and consumer indicators that could affect the Fed's interest rate hike trajectory. The Consumer Price Index (CPI) for December, to be released this week, is expected to rise 6.6% year-on-year, slowing to the 6% range.
Due to high inflation and interest rate hikes continuing since last year, major companies facing increased cost burdens may pass the burden onto consumers by raising product prices or join the wave of large-scale layoffs.
Matthew Friend, Chief Financial Officer (CFO) of Nike, previously confirmed that price increases were implemented to offset input costs. Food manufacturer Conagra also reported sales growth due to price increases and is considering further hikes. In recent months, large-scale layoffs aimed at cost reduction have continued, especially among big tech companies such as Amazon, Meta Platforms, and Salesforce.
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