It looked like the market’s luck was going to run out Friday as fourth-quarter earnings season kicked off. Stocks opened deep in negative territory after several big banks reported Q4 results. However, the major benchmarks reversed course thanks to a solid reading on consumer sentiment, extending their daily win streaks.
JPMorgan Chase (JPM (opens in new tab), +2.5%) was one of several companies that got the ball rolling this morning. The financial firm reported fourth-quarter earnings of $3.57 per share, up 7.2% year-over-year as rising interest rates boosted core lending income. Revenue, meanwhile, was 18% higher in the final three months of 2022 to $34.55 billion.
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Bank of America (BAC (opens in new tab), +2.2%) delivered impressive results, too, with Q4 earnings per share (EPS) and revenue higher on a year-over-year basis. On the other hand, Citigroup (C (opens in new tab), +1.7%) and Wells Fargo (WFC (opens in new tab), +3.3%) saw sharp declines in quarterly profit due in part to the banks setting aside more cash to cover potential losses on loans – news that likely exacerbated investors’ concerns of a possible recession in 2023.
This last point may have been what sent stocks sharply lower at the open, but then a solid reading on consumer sentiment helped markets change direction mid-morning. Specifically, the University of Michigan’s preliminary consumer sentiment index rose to 64.6 in January from December’s final reading of 59.7. Additionally, consumers’ expectations on where inflation will be in the next 12 months fell to 4% in January from 4.4% in December, the fourth straight monthly decline.
“Inflation expectations are well-anchored and improving as pricing pressures are weakening across many sectors,” says Jeffrey Roach, chief economist at LPL Financial. “The Fed will likely hike by 0.25% at the upcoming meeting later this month. We shouldn’t be surprised if the Fed starts talking about pausing in the near future.”
The Dow Jones Industrial Average (+0.3% to 34,302) and the S&P 500 (+0.4% at 3,999) finished higher for a fourth straight day, while the Nasdaq Composite (+0.7% at 11,079) brought its daily win streak to six.
What to Expect This Earnings SeasonEarnings season really picks up next week, with more big banks set to report. For the final three months of 2022, estimated earnings for the S&P 500 are expected to decline 3.9%. If this is the actual decline for the quarter, “it will mark the first time the index has reported a year-over-year decline in earnings since Q3 2020,” says John Butters, senior earnings analyst at FactSet (opens in new tab).
At this point in Q4 earnings season, 67 S&P 500 companies have issued negative earnings per share guidance, vs. 34 that have given positive EPS forecasts, Butters adds.
Revenue growth is also expected to have slowed in Q4. According to Butters, revenue growth is expected to be 3.9%, which will mark the slowest pace of growth since Q4 2020. Utility stocks are forecast to post the biggest year-over-year decline in revenues, while industrials and energy stocks are projected to report the biggest annual increases in revenue. Kinder Morgan (KMI (opens in new tab)) is one of a few energy companies on next week’s earnings calendar. Streaming giant Netflix (NFLX (opens in new tab)) and digital financial firm Ally Financial (ALLY (opens in new tab)) also highlight the slate.