Earnings season got off to a slow start last week, with only eight S&P 500 companies reporting their results. The big banks were the main focus, with earnings that were worse than expected. Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo all missed earnings estimates by various measures. The Federal Deposit Insurance Corporation (FDIC) special assessment, which was introduced to fund losses from the 2023 banking crisis, and other charges complicated the earnings of the large banks. However, investors are remaining optimistic, anticipating better times when the Federal Reserve begins to lower short-term interest rates rather than expecting robust earnings this quarter. Outside of the banking sector, asset manager BlackRock posted better-than-expected results. Despite the disappointing earnings from the banks, the overall earnings season is expected to improve once the banks are in the rearview mirror.
This week, 23 S&P 500 companies are scheduled to report their earnings, and although it is still early in the reporting season, blended earnings (which combine actual with estimates of companies yet to report) are worse than forecasts at the end of the quarter. Sales growth is closely tied to nominal GDP growth, and with a solid nominal GDP growth expected for the fourth quarter, topline revenue growth for companies should have some tailwind. However, so far, sales growth has fallen slightly lower than expected. Looking ahead, retail sales figures for December will provide an important insight into the strength of the U.S. consumer.
Despite the disappointing earnings figures so far, the markets remained relatively positive. The S&P 500 rose 1.9% for the week, while the 10-year Treasury yield declined from 4.1% to 3.9%. The “Magnificent 7” stocks, consisting of Microsoft, Meta Platforms, Amazon.com, Apple, NVIDIA, Alphabet, and Tesla, led the charge higher with a gain of 4.3%. Investors will be closely watching the earnings season to determine the overall health of the economy and the future direction of the markets.
