CNBC Daily Open: Earnings are starting to look weak
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Markets were mostly flat Wednesday despite major companies reporting. Investors weren't swayed by better-than-expected numbers.
- Tesla's net income dropped 24% from the year-ago quarter to $2.51 billion, though its revenue rose 24% to $23.33 billion — despite six price cuts this year — surpassing estimates. Shares dropped 2.02% during market hours and a further 4.19% in overnight trading.
- Morgan Stanley, like fellow investment bank Goldman Sachs, had a tough first quarter. Morgan Stanley's earnings fell 19% from a year earlier to $2.98 billion, and its revenue slipped 2% to $14.52 billion. Still, both figures beat Wall Street's expectations, boosting the bank's shares 0.67%.
- IBM's first-quarter revenue rose 0.4% from a year earlier to $14.25 billion, but its net income jumped a more drastic 26% to $927 million. That suggests the technology giant managed to improve margins. Investors cheered, pushing its shares up 1.61% in extended trading.
- Major U.S. stock indexes ended Wednesday mostly flat, with only Dow Jones Industrial Average dipping 0.23%. European markets mostly closed higher, though London's FTSE 100 lost 0.13% as the U.K. reported a higher-than-expected consumer price inflation of 10.1%.
- Meta announced last month it would conduct another round of layoffs. On Wednesday, the technology company began letting go of employees in technical roles such as graphics programming and software engineering.
- PRO Earnings reports from regional banks show that deposits are stabilizing. Investors were so bullish on one regional bank that they caused its shares to surge 24.12% on Wednesday.
Companies have been beating earnings estimates. The 44 companies in the S&P 500 that had reported earnings as of Tuesday night posted sales growth that was 2.2 percentage points better than expected and earnings that were 8 percentage points higher than forecast, according to Julian Emanuel at Evercore ISI.
Adding on to the optimism, the Cboe Volatility Index — a gauge of investor fear popularly known as the VIX — is near a 52-week low. In other words, investors think stock prices will rise over the next 30 days.
Yet the positive sentiment hasn't seeped into broader markets. Of course, individual stocks have reflected companies' financial health. IBM, for example, rose on the news that it managed to trim costs, while Netflix sank 3.17% because its earnings fell.
But the broader indexes have remained essentially flat. There are, in my opinion, two reasons for that.
First, even though companies have been reporting better-than-expected results, that trend could have low base expectations to thank: Analysts think S&P 500 earnings will fall 5.2% in the first quarter. But this has the effect of making earnings look better than they actually are. As CNBC Pro's Scott Schnipper wrote, "Expectations about the immediate earnings outlook have been down for so long, the actual numbers themselves could look like up to investors."
Second, fewer major companies gave forecasts for the year ahead. The lack of direction regarding their future earnings, coupled with a possible interest rate hike in the U.S. — which now seems more concrete after the U.K. reported yesterday that its inflation remained in the double digits — exacerbated investors' uncertainty.
It appears that investors are already training their eyes on the Federal Reserve's next meeting in May, rather than poring over last quarter's earnings.
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