Aurelia Butler

NEW YORK (Reuters) – U.S. companies are reporting mostly upbeat news this earnings season, surprising investors who had been bracing for a gloomier outlook on both businesses and the economy.More than halfway into the second-quarter reporting period, S&P 500 company earnings are estimated to have increased 8.1% over the year-ago quarter, compared with a 5.6% estimate at the start of July, according to IBES data from Refinitiv as of Tuesday.Some 78% of earnings reports are beating Wall Street expectations, above the long-term average. Profit growth estimates for the third and fourth quarters have come down, but remain sharply positive. S&P 500 earnings for all of 2022 are now forecast to grow 8.1% versus a 9.5% estimated in July, based on Refinitiv data. Investors had been worried that if high inflation and rising interest rates were about to tip the economy into recession, earnings estimates for 2022 were too high. Raising the risk that the economy was on the cusp of a recession, the U.S. Commerce Department said last week the American economy unexpectedly contracted in the second quarter – the second straight quarterly decline in gross domestic product.Concerns over a possible recession had driven a sharp selloff in stocks in the first half of the year. But the S&P 500 and Nasdaq ended July with their biggest monthly percentage gains since 2020, partly because of stronger-than-expected earnings.”The consensus view (was) that earnings were going to just fall apart,” said Jonathan Golub, chief U.S. equity strategist & head of quantitative research at Credit Suisse Securities. “And it just didn’t play out that way.”Company reports are showing that demand remains robust and sales are holding up, he said.”If you want to say, what’s the health of the economy, it’s measured in sales,” Golub said.Year-over-year revenue for S&P 500 companies in the quarter is expected to have risen 12.5% as of Tuesday, compared with 10.4% estimated at the start of July, based on Refinitiv data. Upbeat forecasts from heavyweights Apple (NASDAQ:AAPL) and Amazon.com (NASDAQ:AMZN) boosted investors’ mood late last week, while Chevron Corp (NYSE:CVX) and Exxon Mobil (NYSE:XOM) reported record quarterly revenues.Apple said parts shortages were easing and that demand for iPhones was continuing, while Amazon.com forecast a jump in third-quarter revenue.”It’s held up pretty well, particularly for large-cap names, but of course people were expecting the worst,” said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey. To be sure, the news has not been positive all around. Walmart (NYSE:WMT) rattled investors early last week when it cut its full-year profit forecast, blaming surging prices for food and fuel.That’s raised worried about the health of the consumer and prospects for other retailers, most of which have yet to report results on the last quarter.Also, analysts have been cutting their third-quarter earnings growth estimates by more than usual when compared with “either pre-pandemic or over the last two years,” Nicholas Colas, co-founder of DataTrek Research, wrote in a note this week.Whether earnings forecasts hold up is key to valuations. The S&P 500’s forward 12-month price-to-earnings ratio, at 17.5 as of Tuesday, is down from 22.1 at the end of December but still above the long-term average of about 16, Refinitiv data showed.Other strategists said the season is following a normal pattern: Companies often are more negative than positive with their outlooks, so earnings forecasts for upcoming quarters tend to go down typically during a reporting period.”So far, what’s happened isn’t something that’s worse than feared. And the market was already braced for bad news,” said Keith Lerner, chief market strategist at Truist Advisory Services in Atlanta. More

(Reuters) -A trio of Federal Reserve officials from across the policy spectrum signaled on Tuesday that they and their colleagues remain resolute and “completely united” on getting U.S. interest rates up to a level that will more significantly curb economic activity and put a dent in the highest inflation since the 1980s.Moreover, one of them – San Francisco Fed President Mary Daly – said she was “puzzled” by bond market prices that reflect investor expectations for the central bank to shift to rate cuts in the first half of next year. On the contrary, she said her expectation is the Fed will keep raising rates for now and then hold them there “for a while,” remarks that triggered a wave of selling in rate-futures markets.In a separate appearance, Cleveland Fed President Loretta Mester struck a similarly hawkish tone, noting that inflation has yet to peak and she needs to see several months of very compelling evidence that inflation is on a sustainable path down to the central bank’s 2% goal before policymakers can ease off.Their new uniform remarks reverberated in bond and interest rate futures markets that had emerged from last week’s meeting positioned for the central bank to dial back the pace of rate hikes. Expectations the Fed would reverse course and start cutting rates in the first half of 2023 diminished significantly as reflected in fed fund futures pricing, while the probability of another 75 basis point increase next month moved notably higher.The yield on the 2-year Treasury note – the government bond maturity most sensitive to Fed policy expectations – rose by 20 basis points, the most in nearly two months.Fed Chair Jerome Powell said last week the central bank may consider another “unusually large” rate hike at its Sept. 20-21 policy meeting, with officials guided in their decision making by more than a dozen critical data points covering inflation, employment, consumer spending and economic growth between now and then.Chicago Fed President Charles Evans told reporters on Tuesday that if inflation does not abate before then, he would back such a move.”If you really thought things weren’t improving … 50 (basis points) is a reasonable assessment but 75 could also be okay. I doubt that more would be called for,” Evans said during a question-and-answer session at the regional bank’s headquarters in Chicago, effectively dismissing the prospect of raising rates by a full percentage point next month.The central bank raised its benchmark overnight lending rate by another three-quarters of a percentage point last week to a target range between 2.25% and 2.50%. It has hiked that rate by 225 basis points since March as officials have been increasingly aggressive to try and quash stubbornly high inflation even as recession fears gather pace.’NOWHERE NEAR’San Francisco Fed’s Daly said the central bank’s work of bringing down inflation is “nowhere near” almost done and there is still “a long way to go” to lower inflation from four-decade highs. “That would not be my modal outlook,” she said in an interview streamed on LinkedIn and hosted by a CNBC anchor when asked about investor expectations of rate cuts. “My modal outlook, or the outlook I think is most likely, is really that we raise interest rates and then we hold them there for a while at whatever level we think is appropriate.”Mester struck a similarly bullish note. “We have more work to do because we have not seen that turn in inflation,” Mester said in an interview with the Washington Post. “It’s got to be a sustained several months of evidence that inflation has first peaked — we haven’t even seen that yet — and that it’s moving down.””You wouldn’t want to conclude too quickly inflation is on a downward path because of how high it is…I want to see it broadly across many inflation measures, not just one, not just two,” she added.Evans too noted that he thinks the Fed’s policy rate will have to rise to between 3.75% and 4.00% by the end of next year, but cautioned against too quick a path to get there should it have to retrench unexpectedly on the back of a changing landscape.The economy continues to flash conflicting signals with the tightest labor market in decades strongly pushing up labor costs in the second quarter but economic growth contracting for a second straight quarter. The Fed is trying to dampen demand across the economy to help bring down price pressures without causing a spike in unemployment.U.S. job openings fell by the most in just over two years in June as demand for workers eased in the retail and wholesale trade industries, the Labor Department reported on Tuesday, although other details suggested the labor market remained extremely tight.Evans said that he had downgraded his expectations for economic growth this year and now sees it coming in at 1% or lower, but added that he still sees a path for the Fed to bring down inflation while keeping the unemployment rate below 4.5%. More