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Tag: Calendar of Events

  • Big Tech earnings have been strong, but Apple is about to answer the thousand-dollar question

    Big Tech earnings have been strong, but Apple is about to answer the thousand-dollar question

    While the stock market reactions may not prove it, Big Tech is four-for-four so far this earnings reporting season.

    Alphabet Inc.
    GOOG,
    -0.03%

    GOOGL,
    -0.09%    ,
    Amazon.com Inc.
    AMZN,
    +6.83%    ,
    Meta Platforms Inc.
    META,
    +2.91%
    and Microsoft Corp.
    MSFT,
    +0.59%
    all beat earnings and revenue expectations for the latest quarter, showing, among other things that the advertising market was healthy in the latest quarter and that software spending is holding up.

    But one more major test looms in the week ahead. Apple Inc.
    AAPL,
    +0.80%
    is due to deliver September-quarter results on Thursday and those earnings will answer a key question: Are consumers still so willing to purchase thousand-dollar iPhones in the current economy?

    Results from other companies in recent weeks have painted a mixed picture of consumer spending. Visa Inc.
    V,
    -0.87%    ,
    Mastercard Inc.
    MA,
    -0.14%
    and American Express Co.
    AXP,
    -1.42%
    say that spending remains resilient, but there are also signs that cracks are starting to form in categories deemed non-essential. Just look at Align Technology Inc.
    ALGN,
    +0.20%    ,
    the maker of Invisalign orthodontic aligners, which saw its stock plunge last week after noting that people seem to be putting off dental and orthodontic visits.

    Read: Invisalign maker’s stock craters after soft earnings, but analysts still say it’s a buy

    Granted, some might say that iPhones are glorified necessities these days for Apple fans, even with their high price tags. But Apple conducted an effective price increase on its iPhone 15 Pro model when it rolled out its new phones in September, all while delivering a mostly incremental suite of feature upgrades across all its latest models. Will the new phones prove enticing enough in a period of stretched budgets?

    Just judging by S&P 500
    SPX
    results so far in the aggregate, the odds would seem to be in Apple’s favor for a beat this quarter. About half of index components have already reported, and 78% have posted earnings upside, while 62% have surprised positively on the top line, according to FactSet.

    Revenue will be the key item for Apple, as consensus expectations call for a small decline on the metric, which would mark the fourth consecutive year-over-year drop. It’s also worth noting that companies on the whole haven’t been topping revenue estimates by their usual margin. S&P 500 components in aggregate have reported revenue 0.8% above expectations, which compares with a five-year average of 2.0%, FactSet Senior Earnings Analyst John Butters wrote in a recent report.

    Apple’s report could also highlight the impact of currency on corporate results, as the company generates more than half of its revenue internationally.

    “Given the stronger U.S. dollar in recent months, are S&P 500 companies with more international revenue exposure reporting lower (year-over-year) earnings and revenues for Q3 compared to S&P 500 companies with more domestic revenue exposure?” Butters asked. “The answer is yes.”

    This week in earnings

    Many U.S. investors in financial-technology companies likely hadn’t heard of European payments player Worldline SA
    WLN,
    +9.06%
    before last week, but a warning from the French company about deteriorating conditions in Europe helped send shares of PayPal Holdings Inc.
    PYPL,
    -2.63%
    and Block Inc.
    SQ,
    -3.98%
    sharply lower Wednesday, in a selloff one analyst deemed an overreaction. Those companies will look to reassure Wall Street about the health of their businesses with their own reports this week. Plus, while not a payments name, SoFi Technologies Inc.
    SOFI,
    -0.43%
    will provide another read on the fintech sector. Investors will be watching to see how the end of the student-loan moratorium impacted student lending volumes.

    The week ahead will also shed light on how consumers’ dining preferences have evolved in the current economy. Starbucks Corp.
    SBUX,
    -0.70%    ,
    Dine Brands Global Inc.
    DIN,
    -0.12%    ,
    Cheesecake Factory Inc.
    CAKE,
    -0.47%
    and Sweetgreen Inc.
    SG,
    +0.59%
    are among names on the docket. Plus, amid concerns about the impact of GLP-1 drugs such as Ozempic and Wegovy on eating habits, Kraft Heinz Co.’s management will be in the spotlight.

    Don’t miss: What exactly are patients taking new weight-loss drugs eating and what are they avoiding? Bernstein asked them.

    The call to put on your calendar

    You can’t spell Advanced Micro Devices without AI (sort of): Nvidia Corp.
    NVDA,
    +0.43%
    has been ruling the chip world this year thanks to its dominance with the sort of hardware needed to power the corporate AI fervor. Investors will be watching Tuesday afternoon to see how quickly Advanced Micro Devices Inc.’s
    AMD,
    +2.95%
    own AI story is coming together. “The AMD narrative feels all about their data center (and, particularly, their AI story) right now,” Bernstein analyst Stacy Rasgon wrote in a note to clients. “In the near term the achievability of their 2H data-center growth (guided to 50% half-over-half) will be the question.” Rasgon expects AMD to discuss recent customer wins for its MI300X chip, though he thinks it will take time for the company to see “real volume.”

    The number to watch

    PayPal transaction margins: Shares of the one-time investor darling are trading at their lowest levels since May 2017, and the latest source of anguish for Wall Street is the company’s transaction margins. PayPal’s lower-margin unbranded checkout business has been growing more quickly than its higher-margin branded checkout product, a trend that’s been weighing on overall transaction margins. Barclays analyst Ramsey El-Assal expects the third quarter to mark a bottom on the metric before trends stabilize in the fourth quarter. “We do not believe the stock is crowded on the long or short side into earnings, as investors lack conviction regarding the magnitude of transaction margin headwinds in Q3,” he wrote in a recent preview. “In any case, we view Q3 as a potential clearing event.” PayPal posts results Wednesday afternoon.

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  • Households earning $100,000 or more are cutting back more aggressively on spending. What’s going on?

    Households earning $100,000 or more are cutting back more aggressively on spending. What’s going on?

    We want to hear from readers who have stories to share about the effects of increasing costs and a changing economy. If you’d like to share your experience, write to readerstories@marketwatch.com. Please include your name and the best way to reach you. A reporter may be in touch.

    Higher-earning households are feeling the inflationary pinch.

    Consumer spending slowed and household finances weakened across all income levels last month. But households earning $100,000 a year or more reported shaving more off their spending than less well-off households did, according to a report released this week by Morning Consult, a decision intelligence company.

    The report also found that real monthly spending among U.S. adults fell by 4.3% from November to December. Even so, 21.3% of U.S. adults said their monthly expenses exceeded their monthly income in December, up from 19.2% in November. 

    On average, households earning $100,000 a year or more said they spent about 10% less in real terms in December than they did the previous month. Households earning $50,000 to $99,999 and those earning less than $50,000 a year, meanwhile, reported that they cut their monthly spending bills by no more than 5% on average. 

    Across the board, households are cutting back on recreation, alcohol, vehicle insurance, and other services in December, while spending more on hotels, gas and airfares, the report found.

    One theory on the spending cutbacks: Higher earners typically have more discretionary income, and likely have decided to exercise more fiscal caution after seven interest-rate hikes by the Federal Reserve last year. (On Wednesday, St. Louis Fed President James Bullard told The Wall Street Journal in a live-streamed interview that the Federal Reserve should not “stall” on raising its benchmark rates until they are above 5%.)

    The Morning Consult report did cite inflationary pressures. “Heightened budgetary pressures brought on by persistently high inflation are forcing trade-offs for consumers, leading to reallocation across categories,” it said. “For instance, as food grew more expensive over the past year, U.S. households accommodated an increase in grocery purchases by spending less at restaurants.”

    Earlier last year, higher-income households led consumer spending  in the face of rising prices, said Kayla Bruun, an economic analyst with Morning Consult and co-author of the report. But household income, even for those earning six-figure incomes, has not been growing fast enough to keep up with inflation, she said.

    “They probably started to realize, ‘Hey, I can’t keep buying the same basket of goods each month and expect to continue adding to my savings,’” Bruun told MarketWatch. 

    At the same time, recent layoffs in the higher-earning tech and financial sectors may also have affected sentiment among wealthier households, Bruun said.

    The tech and financial sectors felt the impact of rising interest rates and economic headwinds, she added. Goldman Sachs
    GS,
    -0.25%
    and BlackRock
    BLK,
    -1.53%
    said earlier this month they were cutting jobs. Microsoft Corp.
    MSFT,
    -2.14%
    confirmed plans on Wednesday to lay off some 10,000 workers, equivalent to around 5% of the company’s global workforce. 

    Before Microsoft’s announcement, data compiled by the Layoffs.fyi website estimated that more than 25,000 global tech-sector employees have been laid off in the first few weeks of 2023. Last year, approximately 60,000 people in the tech industry were laid off, according to Challenger, Gray & Christmas. 

    Still, there has been some good news: Inflation eased in December for the sixth consecutive month: The annual rate of inflation fell to 6.5% from 7.1% in November after reaching a four-decade-high of 9.1% last summer. 

    Also read:

    Microsoft will lay off 10,000 workers. If you get fired from your tech job, what should be your next move?

    Inflation hit rural, Hispanic, and Black people harder for one key reason

    High medical costs made more Americans delay care last year

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