Weak reports from US companies overshadowed the outlook for the market

The first results of American companies in the current reporting season forced investors to shift their attention to a number of key problems that American businesses are facing: from the threat of a recession in the economy to pressure on profits due to rising costs, writes The Wall Street Journal.

Companies that warned of current problems or a bleak outlook last week included JPMorgan Chase & Co., Delta Air Lines Inc. and industrial supplier Fastenal Co..

Unimpressive corporate results, as well as fresh data on inflation, which remains at a maximum for forty years, put pressure on the US stock market last week. Even despite a solid rise in trading on Friday, the S&P 500 indicator lost 0.9% over the week, and has dropped 19% since the beginning of the year.

So far, 7% of S&P 500 companies have reported quarterly results for the past quarter, with 60% beating analysts’ forecasts, compared to a five-year average of 77%, according to FactSet. Since the end of March, analysts have downgraded their forecast for quarterly profit growth to 4.2% from 5.9%.

Investors evaluate mixed signals regarding the forecasts of companies and the economy as a whole. This week they will be reviewing a new batch of quarterly reports, including the results from Netflix Inc. and Tesla Inc. In addition, data on the labor market will be published, which will allow assessing its state in the face of high inflation and growing pressure on the economy.

The current reporting season has traditionally started with the results of major banks. Morgan Stanley posted worse -than-expected adjusted earnings and revenue in the second quarter of 2022 due to declining investment arm earnings. Wells Fargo & Co. recorded weaker -than-expected net income and revenue figures.

The largest US bank in terms of assets, JP Morgan Chase & Co. in the second quarter cut net income more than analysts had expected.

„This is just confirmation of what has already become a common belief that inflation has hurt the economy, and the Fed’s attempts to prevent its further scale will be an obstacle to economic growth and, thus, to profit growth,” said DWS Group chief investment officer in North and South Americas David Bianco quoted by the WSJ.

The reporting season will last for several weeks, and investors will closely monitor the performance of companies to identify „winners” and „losers” in the race to maintain profits amid rising costs.

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