In One Chart: Positive corporate earnings growth may spur additional, but slower, Fed rate hikes: Goldman Sachs

by | Aug 1, 2022 | Stock Market

With nearly 74% of the companies in the S&P 500 that have reported earnings results for the second quarter beating Wall Street estimates, analysts said resilient corporate fundamentals and peaking core inflation pressures may keep the Federal Reserve on track for more rate increases, but at a slower pace.  “With nearly three-quarters of its market cap now reported, S&P 500
earnings have increased 9% year-on-year, 52% of reporters beat consensus expectations by 1 standard deviation, and revenues are growing in every sector,” said analysts led by Goldman Sachs chief economist Jan Hatzius in a note Monday. “Even excluding the outperforming energy sector, S&P revenues rose 3.8% in real terms, above the 2.6% average pace since 1970 and compared to an average decline of 1.2% in the first quarter of recessions.”

The stocks had powered higher last week, with the S&P 500 and Dow Jones Industrial Average
closing the final trading day of July with the biggest monthly gains since November 2020. After raising the benchmark interest rate by another 75 basis points last week, Fed Chair Jerome Powell suggested that another unusually large interest-rate hike might be needed in September but would depend on upcoming economic data, while he added that it will also likely be appropriate to slow increases at some point.  The preliminary reading of second-quarter GDP on Thursday confirmed an economic contraction and convinced markets that the U.S. economy is probably technically in recession. On Friday, the June personal consumption expenditures, the Fed’s preferred inflation measure, hit the highest level since January 1982.  However, corporate financial results indicate otherwise. Apple Inc.
on Thursday posted better-than-expected results for its latest quarter, highlighted by a 3% revenue jump in the iPhone segment which helped offset a sizable miss in Mac revenue amid steep supply constraints. Inc.
reported a revenue growth of 7% in the second quarter which also topped estimates, reflecting the power of Prime, AWS and the company’s advertising business.  Read mor …

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