Written by: Edward Moya | OANDA
US stocks are softening after a mixed bag of earnings was accompanied by the return of banking jitters and news that President Biden will run for re-election. Overall earnings are coming in better-than-expected, but the consumer is weakening and very concerned about the outlook. This deep into earnings season, it seems the outlook isn’t too bad and that should mean the Fed can stay on their tightening course with the risks of a June hike still remaining on the table. After this round of earnings and the latest consumer confidence report, the one thing that everyone can agree upon is that personal consumption is going to be a lot weaker going forward.
US Data
Consumer confidence weakened more than expected as their expectations signal a recession is looming. The survey noted that “They also expect fewer jobs to be available over the short term.” The headline index fell from 104.2 to 101.3, also much lower than the consensus estimate of 104. What caught everyone’s eye was the plunge with expectations, a decline from a revised 74 to 68.1. The present situation posted an expected improvement.
It is also worth noting an impressive surge to a one-year high with new home sales. No one saw this coming given the weaker consumer and the overall rise with mortgage costs. This might be more of buying new homes versus existing ones.
The Good
GM posted strong numbers, bumped up their outlook, and unveiled their EV strategy for the next couple of years. GM’s strong earnings beat at $2.21, was higher than the $1.72 the street was eyeing, while revenue impressed, rising 11.1%, to $39.985 billion. Full-year EPS guidance was raised from $6-7 to $6.35-7.35, while adjusted EBIT was bumped up to $11-13 billion verse a prior guidance of $10.5-12.5 billion.
McDonalds
McDonalds told a similar story that we heard from Coca-Cola, the US consumer is willing and able to take on these price increases. The fast-food giant posted better than expected first quarter profit with a 32-cent beat, robust revenue growth of 4%, and comparable sales growth of 13%, which blew past the analysts’ expectation of 8.2%. CEO Kempczinski noted “amidst a challenging operating environment, customer demand for McDonald’s Brand remains strong.”
As the economy figures out what type of a recession it will have, McDonalds seems like it is positioned nicely given its pricing power.
JetBlue
JetBlue didn’t post the best results, but they did deliver an upbeat outlook. JetBlue noted that “demand trends remain robust into the second quarter, with strong demand for leisure and visiting-friends-and-relatives (VFR) travel particularly during peak periods.”
It looks like the consumer is prioritizing experiences versus other purchases and the more friendly priced airliners might be in a better position to deal with whatever recession we end up seeing.
Raytheon
With a deteriorating macro backdrop, Raytheon did a solid job this earnings season. The defense giant delivered a solid earnings beat of nine cents and was able to raise their dividend by 7%.
Spotify
Spotify missed revenue but reported strong subscriber numbers. The music streamer was finally able to see their monthly active users top the 500 million mark, rising 22% in the period to 515 million. It is all about paid subscribers and that is something Spotify is finally getting done. The ad softness is why they missed on revenues, but the street might give them a pass on that.
The Bad
3M
More restructuring is coming to the Minnesota company that makes tape and other home-use products. The US industrial giant will cut 6,000 jobs globally as they aggressively try to manage their costs. 3M earnings weren’t that bad at all as they delivered a strong earnings beat, EPS of $1.97 versus $1.59 expected and sales came in at $8.0 billion, well above the $7.47 billion estimate. The guidance for the second quarter was the ugly part, as EPS was seen between $1.50 and $1.75, well below Wall Street’s expectations of $2.14.
The Ugly
First Republic deposits plunged by almost 40% in the first quarter, much worse than what Wall Street was fearing. The regional lender noted that deposit flows have stabilized and that they are pursuing strategic options. Deposits were down over $70 billion from a quarter ago and that includes a $30 billion in rescue funds from other banks. Despite only a 1.7% drop in deposits from March 31st to the 21st, First Republic is still in the danger zone.
UPS shares are tumbling after delivering a pessimistic outlook and cutting their full-year outlook. The shipping and logistics giant said that “given current macro conditions, we expect volume to remain under pressure” Full-year revenue was lowered from a range of $97-99.4 billion to ~$97 billion, which was below analysts’ expectations of $97.6 billion. Earnings and revenue declined as expected to an adjusted $2.20 v $3.05 from a year ago and sales dropped from $24.4 billion to $22.9 billion.
Oil
Oil prices slumped as the dollar rallied and crude demand signals remained mostly bearish as Halliburton signaled that customers are clearly motivated to produce more oil and gas. The one positive news for crude was the upbeat outlook from JetBlue on robust demand trends in the second quarter. Energy traders aren’t buying this dip until they have clear signs that the sky has stopped falling. Concerns about China’s recovery aren’t going away until we see strong signs crude demand is improving. Unless we see risk appetite quickly return to Wall Street, it could get uglier for crude prices.
Gold
Gold is struggling as the dollar stages a comeback as investors go into de-risking mode. Gold is still a safe-haven, but today it is letting the dollar have its day in the sun. Debt ceiling progress took away some of gold’s appeal, as insiders view President Biden’s re-election announcement as giving a boost to Speaker McCarthy’s chance of getting this bill passed by his fellow republicans. Gold is still near the $2,000 level and if the bloodbath on Wall Street gets uglier, investors will eventually pile back into the precious metal.
Bitcoin
Bitcoin is lower as Wall Street takes some risk off the table. Bitcoin is still showing it is a risky asset as it is in the red along with all the other major asset classes. Earnings risk, more Fed tightening, and regulatory fears are still weighing on cryptos.
Coinbase made the decision to sue the SEC for clarity on crypto regulations in the US. This could put pressure on the SEC to make a decision a little sooner than they were anticipating. Coinbase clearly wants to be able to operate in the US and they are hoping this lawsuit will give them the clarity a lot sooner so they can make the right business decision.
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