The US third quarter earnings season accelerates this week, and sentiment will be tested right from the get-go by reports tonight from Tesla and then early Wednesday morning (all Sydney time) from Netflix.
For last week Tesla shares were down more than 8%, thanks mainly to Friday’s 7% slide, and came despite good sales news from China for September where the company shipped more than 83,000 vehicles for the first time.
But the business and social media meanderings of CEO Elon Musk, especially around his ham-fisted bid for Twitter, continue to worry investors, hence Friday’s sell down when it was reported some of Musk’s comments about Twitter are being investigated by the US Securities & Exchange Commission.
Netflix shares, though, rose 2.3% for the week after it revealed plans for its advertising supported streaming service.
Besides Tesla and Netflix, other companies reporting this week include American and United Airlines, Amex, Schlumberger, Volvo, Nucor, Verizon, AT&T, Snap, Danaher, Freeport McMoran, CSX, Dow, Hasbro, Johnson & Johnson, Lockheed Martin, Abbott Labs, Procter & Gamble and Baker Hughes.
Quarterly reports from the two remaining megabanks – Bank of America tonight and Goldman Sachs on Tuesday will fill out the major bank reports.
As forecast third quarter profits slid at Wall Street’s biggest banks as they prepared for a weaker economy, investment banking was hit hard as dealmaking dried up
JPMorgan, Morgan Stanley, Citigroup and Wells Fargo all reported lower earnings on Friday. They will be followed by Bank of America on Monday and Goldman Sachs on Tuesday – both are forecast to produce similar results.
JPMorgan reported a 17% drop in third-quarter profit to $US9.74 billion (down from $US11.7 billion), although that was less than had been forecast by analysts. Morgan Stanley reported a 30% slump in profit to $US2.49 billion. Wells Fargo posted a 31% fall to $US3.53 billion. And Citi reported a 25% drop to $US3.5 billion.
Morgan Stanley’s earnings showed that investment banking revenue (its core business) more than halved to $US1.23 billion in the quarter with declines recorded from the bank’s advisory, equity and fixed income segments.
The prospect of a worsening economy in 2023 saw the banks set aside more money in preparation for potential loan losses – JPMorgan set aside $US1.5 billion in extra reserves, Citi added $US370 million to reserves and Wells had a $US385 million increase in the allowance for credit losses.
JPMorgan Chief Executive Officer Jamie Dimon said there were “significant headwinds immediately in front of us,” noting stubbornly high inflation, higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine and the fragile state of oil supply and prices.
“While we are hoping for the best, we always remain vigilant and are prepared for bad outcomes,” he said in the bank’s earnings report. On a conference call, Dimon said U.S. consumers remained strong and while he wasn’t predicting a recession but “there are a lot of headwinds out there.”
AMP chief economist Shane Oliver says consensus expectations are for earnings to have risen just 2.6% over the year to the September quarter, “but with earnings revised down by more than normal over the last few months and nominal economic growth remaining strong there is probably upside to this to around 5%.”
