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Investors are pretty bad at living in the moment. We’re currently in the thick of fourth quarter earnings reports, but traders don’t seem to care about how companies fared during the final months of 2022. They’re more focused on what’s going to happen in the future.
Case-in-point: Earnings calls, where top execs pontificate about their economic outlook, have been moving markets more than earnings-per-share and revenue reports.
What’s happening: The mantra on Wall Street has become, as Ritholtz Wealth Management CEO Josh Brown puts it, “ignore the numbers, wait for the call.”
Microsoft reported great fourth quarter earnings last Tuesday that beat Wall Street’s expectations, but the stock dropped 4% the next day. That’s because CEO Satya Nadella got on an earnings call with investors and warned of a slowdown in the company’s cloud business and software sales. His negative outlook came just as the company announced it was letting go of 10,000 employees, further spooking investors.
Other tech companies are following suit — while things are fine for the time being, they’re reporting that the future is foggy.
IBM stock sank 4.5% last Thursday even as the tech titan beat Wall Street’s Q4 expectations. The reason for the drop might be because Jim Kavanaugh, IBM’s finance chief, warned on the conference call that it would be wise to expect the company’s total 2023 revenue growth to be on the low end. IBM also announced layoffs – the company said it plans to cut around 3,900 jobs or 1.5% of its total workforce.
The economic environment is rapidly changing. CEOs on earnings calls are talking more about recession than inflation now, according to an analysis by Purpose Investments.
Wall Street is also beginning to fear an economic downturn more than painful rate hikes and as a result investors are putting more weight on CEO and CFO forecasts.
And they’re looking bleak. As of Friday, 19 companies in the S&P 500 had issued forward earnings-per-share guidance for the first quarter of 2023, according to FactSet data. Of these 19 companies, 17, or 89%, issued negative guidance. That’s well above the 5-year average of 59%.
“My best guess is that cautious tones on conference calls will be the norm, not the exception,” wrote Brown in a recent post. These slowdowns have been partially factored into stock prices, he said, “but not necessarily in full.”
The upside: Market reaction appears to go both ways. American Express missed on earnings last week but said that credit card spending was hitting new records and that the future looks bright. The stock shot up more than 10%.
Prices at the pump typically fall during the coldest months as wintry weather keeps Americans off the roads. But something unusual is happening this year, reports my colleague Matt Egan. Gas prices are rocketing higher.
The national average for regular gas jumped to $3.51 a gallon on Friday and remained there through the weekend, according to AAA. Although that’s a far cry from the record of $5.02 a gallon last June, gas prices have increased by 12 cents in the past week and 41 cents in the past month.
All told, the national average has climbed by more than 9% since the end of last year – the biggest increase to start a year since 2009, according to Bespoke Investment Group.
Why are gas prices jumping? It’s not because of demand, which remains weak, even for this time of the year. Instead, the problem is supply.
The extreme weather in much of the United States near the end of last year caused a series of outages at the refineries that produce the gasoline, jet fuel and diesel that keep the economy humming. US refineries are operating at just 86% of capacity, down from the mid-90% range at the start of December, according to Bespoke.
Beyond the refinery problems, oil prices have crept higher, helping to drive prices at the pump northward. US oil prices have jumped about 16% since December partially due to expectations of higher worldwide demand as China relaxes its Covid-19 policies and also because oil markets are no longer receiving massive injections of emergency barrels from the Strategic Petroleum Reserve.
What’s next: Expect more pain at the pump. Patrick De Haan, head of petroleum analysis at GasBuddy, worries the typical springtime jump in prices will be pulled forward.
“Instead of $4 a gallon happening in May, it could happen as early as March,” De Haan told CNN. “There is more upside risk than downside risk.”
A return of $4 gas would be painful to drivers and could dent consumer confidence. Moreover, pain at the pump would complicate the inflation picture as the Federal Reserve debates whether to slow its interest rate hiking campaign.
Goldman Sachs had a rough time in 2022, and the investment bank’s CEO, David Solomon, is being punished for it. Well, kind of.
The investment banking giant said in a Securities and Exchange Commission filing Friday that Solomon received $25 million in annual compensation last year. While that is still a very large amount of money, it’s down nearly 30% from the $35 million that Solomon raked in during 2021, reports my colleague Paul R. La Monica.
Solomon’s $2 million annual salary is unchanged. But the company said that his “annual variable compensation,” paid in a mix of performance-based restricted stock units and cash, was well below 2021 levels.
Goldman Sachs (GS) shares fell more than 10% in 2022. The company also reported a 16% drop in revenue in the fourth quarter and profit plunge of 66% earlier this month, mainly due to the lack of merger activity and initial public offerings.
Maybe Solomon can make that extra $10 million with payouts from his burgeoning DJ career.