We are facing one of the most important weeks in memory for the markets and the US (and global) economy. On the one hand, Tuesday’s US election has huge implications, from taxes to inflation to deficits… two entirely different models. They will face off in elections and decide the course of the global economy.. On the other hand, the Fed has its meeting this Thursday in which, despite the fact that everything seems linked to a guaranteed 25 basis point cut, the future steps of the central bank will be defined. However, while all of this is happening, one of the most important trends continues: business results.
The strong resilience of corporate revenues and profits is one of the pillars on which the United States’ soft landing, or lack thereof, has been built. Some companies, with their activity unchanged, can maintain a labor market at full employment without layoffs and fully operational economic activity. In fact, when doubts arose about a possible recession, it was in the accounts of the country’s main companies that analysts saw the “canary in the mine”.
In this sense, this week, a good part of the company’s accounts are already blocked. This Monday, 70% of them have already come forward. In the absence of certain titans like Cisco, Disney, AstraZeneca, Home Depot or Qualcomm, there is not much left. The big absentee is Nvidia, the chip giant which will present the season which has already ended on November 20. Still, markets are already drawing conclusions from what appeared to be a litmus test in which weakening could be expected. In the end, Wall Street firms once again did their part.
According to Factsec data, around 75% of all companies featured delivered profits above expectations, exactly the same as the average for the last ten years and slightly below the last five years. For their part, profits have generally increased 8.4% compared to the previous year and 4.6% above estimates. A little below the average of the last five years but maintaining the health of the sector. All this despite the fact that the alarms went off at the beginning, because, after the presentation of the first third, it seemed that they would remain well below their historical average.
However, even if these measures generate benefits, there is growing concern that These benefits are supported for the wrong reasons. Some analysts warn that even if they manage to keep profits rising through cuts, the threat lies in revenues, where there is some fatigue.
Charles Schwab experts describe the current season as “strong”. Analyst Liz Ann Sonders comments that “The companies are really impressive with their results.” However, the company emphasizes that the reasons why this success is achieved must be carefully clarified. It’s not that companies are seeing revenues significantly better than expected, but rather that they are finding ways to maintain profitability in a more complicated environment than the numbers might at first glance suggest.
According to Charles Schwab in gross receipts, the excess rate It only exceeded 59%, far less than what was achieved in terms of profits. In fact, that rate is the lowest since the first quarter of 2020, when the pandemic brought the world to a halt and Wall Street firm activity sank. In this sense, experts warn that these results must be read very carefully. “We believe the market’s focus has shifted (and will continue to shift) to what’s happening in terms of the top line. Cost reductions can only deliver higher profits for a certain amount of time, until businesses are no longer able to meet the low demand.”
At the sector level, virtually all managed to exceed forecasts, with the exception of three clear examples, the energydestroyed by the fall in oil prices, negative compared to estimates with a 28.5% drop in profits. For their part, businesses have also experienced setbacks. industrial (-9.6%) and materials (-2%).
However, the big doubt running through the markets was about big tech companies. A place where there is a big slowdown. The Magnificent Seven saw howOr that amazing 50% profit growth It was diluted up to 20% this season (while waiting for Nvidia). All this despite the fact that these values met predictions this season. Alphabet started last week up 4.64% thanks to a 35% year-over-year increase in results from its cloud division, 600 basis points ahead of consensus expectations. Microsoft (+1.39%) confirms the trend with a 34% increase in its Azure cloud offering. Apple actually came out defeated in its results, surpassing its profits, but with a less good outlook for the last quarter.
Charles Schwab believes mega-cap earnings growth will continue to stagnate. “This trend will continue until the third quarter of 2025.” In this sense, they say that “this contrasts with a context of general improvement in the profits of stocks that do not belong to this group”. This “continues to be a fundamental pillar, a rotation in the direction that began to work in the middle of the summer” and that the company sees being consolidated over the months.
Regardless, Bank of America estimates that the increase in profits, Whether it’s reductions or increases in revenue, This is a fantastic signal for the markets and the economy. Savita Subramanian, the bank’s strategist, said in a report released Monday that this may not be a trend, but rather a successful step in a complicated environment. “Businesses have been operating in a weak demand environment for almost two years due to weakness in goods and manufacturing, but we are seeing signs that the worst may be behind us,” Subramanian defended.
In this sense, the North American company has insisted that it expects that we will now see an even stronger increase in profits. “The clues that were left during the conferences on the results of this third quarter suggest that “We will see notable profit growth in 2025.” BofA expects this to come mainly from industry with a “clear recovery in manufacturing activity in the first half thanks to the end of electoral uncertainty and a Fed which continues to lower its rates”.
