Beauty is in the eye of the beholder.
Overall, this was a good earnings season.
Some major companies have cut their profit estimates – including tech giant Microsoft and soda seller Coca Cola. The results alone were also fine, considering increasing geopolitical unrest, higher fuel prices and a cautious US consumer.
Of the roughly 235 S&P 500 companies that reported third-quarter results, revenue growth was 5.1%, according to EvercoreISI’s Julian Emanuel. Revenues rose 14.5%. Sales and profit surprised consensus by 0.6% and 8.9%, respectively.
Not too shabby.
But dig beneath the surface, as we do here at Yahoo Finance, and you can see – and feel – the pressure on Corporate America’s finances and future plans is mounting.
Why? Check out the 11 interest rate hikes the Federal Reserve has implemented since its tightening campaign began in March 2022.
I’m shocked that the market isn’t absorbing this ongoing stress (or maybe it is, hence the Nasdaq correction) and how it could impact stock prices in 2024.
A CFO of a technology company with a market cap of over $100 billion tells me that higher interest rates are starting to permeate all areas of his business. This includes hiring plans, capital allocation and new business. I wouldn’t say this CFO panicked on the phone, but there is new pressure on their operating model to make changes to reduce costs.
This CFO is not alone.
Here’s what several top politicians told me on Yahoo Finance Live about the Federal Reserve’s increasingly far-reaching tentacles. Keep that in mind when Fed Chairman Jerome Powell takes the stage later this week to reiterate his stance that inflation must be suppressed – even at the expense of American businesses and economic growth.
“I am not an economist. What I can tell you is that I think we have reached a level where people are questioning investments, not in infrastructure, not in public-private partnerships, but where people have the opportunity to make the investments delay, especially in the private sector.” Developers. I think they’re working on the math because of interest rates.”
The story goes on
“For lack of a better analogy, I would describe the real estate market at the moment as Dr. Jekyll and Mr. Hyde. And the reason I say that is because you have two sides. The new apartments – you’ve all seen them Order intake is solid as there is strong demand for new living space.
The other side is sales of existing homes, which is a very, very large part of our overall demand. And as you all have seen, existing home sales are now under 4 million, going back to 2010. So there’s this weird situation where there’s a structural undersupply of a market, which has a positive impact on new home sales. But at the moment there are simply not enough existing houses in the portfolio to allow renovation because everyone is afraid of losing attractive mortgage rates etc.
So these are two very opposite trends at the moment. Over time and in the long term, we continue to say that we are very optimistic about the medium and long-term development of the US real estate market. Housing in the U.S. is underserved by 2 to 3 million units. And at some point the market will return to equilibrium.
“Yes, that [higher rates] does [impact our planning]. In fact, at the same time as we announced our dividend program, we announced that we would achieve our target of 2.5x leverage a little faster than planned. And next year we will reach 2.7 times and switch immediately. So you know we’re managing our balance sheet accordingly as interest costs rise. But remember, we are also moving more and more towards investment grade.”
Brian Sozzi is Editor-in-Chief of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email [email protected].
Click here for the latest stock market news and in-depth analysis, including stock-moving events
Read the latest financial and business news from Yahoo Finance