Interactive Investor

Market snapshot: companies to the rescue?

25th April 2022 08:06

Richard Hunter from interactive investor

With interest rate concerns now entrenched in the investor psyche, corporates have the chance to come to the rescue ahead of the busiest week in the reporting season.

The embattled Nasdaq index, which after its latest lurch downwards now stands lower by 18% in the year to date, is host to a number of megacaps which are due to report this week. The likes of Apple Inc (NASDAQ:AAPL), Inc (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT) and Google-owner Alphabet Inc Class A (NASDAQ:GOOGL), all of which have seen their share prices under pressure so far this year, are overdue in bringing some good news in terms of assuaging investor concerns.

Not only will these companies be under pressure to deliver earnings which are at least in line with expectations, but their outlook comments and forecast numbers will be of equal importance.

Amid the environment of an increasingly cash-strapped consumer whose ability to spend is in question, markets will be looking for some crumbs of comfort from the immediate corporate outlook.

Indeed, although the majority of companies have so far beaten expectations during this quarterly results season, this week is the acid test, with an estimated half of the market by value expected to report. By the same token, companies which have missed expectations have been severely punished, as plainly evidenced by the slump in the Netflix Inc (NASDAQ:NFLX) share price following its update.

In the meantime, the perception of an increasingly hawkish Federal Reserve has ignited fears of recession should the interest rate hiking programme be overdone, while this week should also provide some further colour in the form of US growth figures. The balancing act resulting from the figures will be an estimation of whether the rate of growth is enough not only to maintain the economic recovery so far, but also whether the economy is robust enough to withstand the impending rate rises.

In the meantime, a poor session on Friday weakened the performances of the main indices further, with the Dow Jones now behind by 7% and the S&P500 by 10.4% in the year to date.

The pace of reporting is equally frenetic in the UK this week, where scrutiny on the numbers and outlook will be as intense. Each of the UK banks will post first-quarter updates, following a tepid showing from the US banks on the whole.

Focus may also come to bear on shareholder returns and the announcement of any further dividend or share buyback developments, given the embarrassment of riches which the UK banks currently carry in terms of excess capital.

Elsewhere, and following some weak retail sales numbers last week, the likes of Primark owner Associated British Foods (LSE:ABF) will be watched for evidence of changing consumer behaviour. After some disappointment surrounding the General Merchandise and Argos divisions at the last update, Sainsbury (J) (LSE:SBRY) will also be scanned for improvements as it reports full-year results.

Any progress within company updates will also need to be robust to underpin a market which has so far weathered the global economic storm this year.

However, with the skittish sentiment of the US markets passing through to the UK via Asia in early trade, the FTSE100 has seen its defensive work this year evaporate in an instant, with the premier index now standing largely flat in the year to date.”

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