Market snapshot: mixed fortunes as US earnings season begins

Earnings expectations this results season are pretty low, but there are opportunities for surprises either way. Our head of markets analyses the action so far.

US markets had a mixed Friday under a barrage of company results, but ended the week as a whole in positive territory.

The bar is low for earnings expectations this season, with estimates generally predicting a decline of around 7% in earnings compared to the previous year.

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The calendar is still in its early days, but UnitedHealth Group Inc (NYSE:UNH) was an early winner after reporting better-than-expected adjusted earnings and revenues. The picture for the banks was slightly more nuanced, as equally pleasing earnings and revenue numbers were slightly offset by some cautionary outlook comments from the boardrooms of the likes of JPMorgan Chase & Co (NYSE:JPM).

Another indication of what could be to come in terms of investor reaction to earnings misses was Citigroup Inc (NYSE:C), whose shares fell by 4% after reporting disappointing numbers.

The cautionary comments from the banks picked up the current headwinds facing the US economy, despite its current resilience and no immediate signs of rising customer defaults. With inflation remaining high and in certain parts of the economy stubborn, the Federal Reserve’s task is not finished, while the level of US debt is also something of a concern.

Meanwhile, the ongoing war in Ukraine could temper sentiment and the tightening policies of central banks could yet be corrosive to growth.

Further reports this week will come at a brisk pace, with updates from the likes of Tesla Inc (NASDAQ:TSLA), Morgan Stanley (NYSE:MS), The Goldman Sachs Group Inc (NYSE:GS), Netflix Inc (NASDAQ:NFLX) and Bank of America Corp (NYSE:BAC).

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On the economic calendar, US retail sales will provide more colour as to the behaviour of the vitally important consumer. In the meantime, the slight market wavering at the end of the week has done little to mar the performances of the major indices in the year to date, with the Dow Jones having added 4.1%, the S&P500 17.3% and the Nasdaq 35%.

Asian investors had their own issues to contend with, resulting in a mixed and choppy session. China reported growth of just 0.8% in the second quarter, which compared with 2.2% in the first, driven largely by weak retail sales, tepid private sector investment and a poor performance from exports.

With youth unemployment and the property sector remaining additional thorns in the economic side, investor impatience for further stimulus from the authorities is rising as the initial post-pandemic bounce seems to be fading fast.

Lacklustre Asian sentiment rippled over to UK shores in early trade, with the major indices under some pressure. The Chinese effect is an important factor in terms of outlook for a number of FTSE100 companies, ranging from the mining sector generally to more stock-specific names such as HSBC Holdings (LSE:HSBA), Standard Chartered (LSE:STAN), Prudential (LSE:PRU) and Burberry Group (LSE:BRBY).

The half-yearly reporting season does not quite hit the pace of the US this week, but other important announcements in the form of UK inflation and retail sales will both provide important updates on an economy, which has proved to be surprisingly resilient so far this year.

Even so, the prospect of more interest rate rises to come could topple the balance, with weak underlying growth and cautious consumer sentiment providing little defence against a tightening monetary environment.

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Of late, international investors seem to have decided that stronger short-term growth opportunities lie elsewhere, with the major indices having given up any gains from earlier in the year, which included a record high for the premier index.

The FTSE100 and FTSE250 are now down by 0.6% and 2% respectively, with the prospect of a testing few days next week as a raft of companies including the banks report, which should provide more immediate direction depending on the outcome.