Corporate America is celebrating one of its strongest earnings seasons of the century — but analysts warned of possible storm clouds ahead as energy prices surge and consumer sentiment tanks because of the Iran war.
About two-thirds of the way through the first-quarter earnings season, a whopping 84% of the companies in the S&P 500 have beaten their earnings estimates, according to FactSet. That’s well ahead of the five-year average of just 78%.
Deutsche Bank researchers called it “one of the best earnings seasons in 20 years.” All 11 top sectors of the S&P 500 – including tech and healthcare – are expected to show yearly earnings growth for the first time in four years, they added in a note this week.
Most of the growth, however, is coming from AI-related demand in the tech sector, Parag Thatte, a Deutsche Bank strategist who worked on the report, told The Post. While consumer-oriented companies saw growth in the first quarter, it was much weaker, he said.
“On the outset the numbers look good, but you have to kind of dig underneath the surface to see where the cracks are potentially forming,” Tracy Shuchart, senior economist at NinjaTrader, told The Post.
Firms like McDonald’s and Domino’s — which cater more toward low- and middle-income consumers – are already lowering their Q2 outlook, Shuchart told The Post.
The most noticeable impact, she said, will come when stores that sell big-ticket items, like Home Depot and Lowe’s, also start slashing their forecasts.
Home appliance maker Whirlpool on Wednesday warned it is facing a “recession-level industry decline,” slashing its full-year forecast and announcing that higher prices are on the way.
McDonald’s, meanwhile, became the latest to beat earnings and revenue estimates in the first quarter on Thursday.
It joined upbeat reports from Burger King, Taco Bell and Starbucks, surprising analysts who have warned the fast-food industry will be hit hard as higher fuel prices eat into Americans’ savings.
But McDonald’s CEO Chris Kempczinski warned that painful prices at gasoline pumps – which are 50% higher than pre-war prices – are already starting to eat away at consumer spending.
“I think probably it’s fair to say that … it’s certainly not improving, and it may be getting a little bit worse,” Kempczinski said during a post-earnings call Thursday.
On Wednesday, Uber, Disney, CVS Health and Novo Nordisk all reported strong first-quarter earnings – with their execs touting strong consumer spending in the face of uncertainty.
Uber CEO Dara Khosrowshahi said consumers are continuing to spend on rides, and there haven’t been “any signs of that weakening at this point,” while Disney said fans are visiting their theme parks at a “healthy” pace.
The tech sector joined in the Q1 earnings blitz last week as Amazon, Meta, Microsoft and Alphabet turned around strong reports.
Amazon saw huge double-digit growth in its artificial intelligence business, which it argued was evidence that its massive data centers investments were paying off.
But investors are still fearful that tech companies could be overspending on AI, which sent shares in Meta and Microsoft nosediving even after they reported strong earnings.
America’s biggest banks, including JPMorgan Chase, Citigroup, Wells Fargo and Bank of America, last month also reported their strongest first-quarter profits in years.
Bank executives cited a surge in trading – even as JPMorgan CEO Jamie Dimon warned the US economy is still facing a growing list of risks.
JPMorgan’s trading desk racked up a record $11.6 billion in the first quarter, while Citigroup posted its highest quarterly revenue in a decade at $24.6 billion and saw profit jump 42%.
