As the U.S. fourth-quarter earnings reporting season reaches its midpoint, concerns are emerging within the financial industry regarding the deterioration of consumer credit. Companies in the footwear and clothing sectors report that retailers, still grappling with the impact of inflation on consumers, are hesitant to make purchases. In response, some businesses are implementing cost-cutting measures and laying off employees.
Despite these challenges, major technology companies are playing a significant role in boosting overall profits. A FactSet report on January 19 revealed that, approximately a week into the fourth-quarter earnings season, the per-share profit for S&P 500 index companies had declined by 1.8%. However, after the release of results from Meta Platforms Inc., Amazon.com Inc., Microsoft Corp., Alphabet Inc., and Apple Inc., profits for the quarter saw an increase of 1.6%.
According to FactSet Senior Earnings Analyst John Butters, the slower start to the earnings season was attributed to the number of banks and financial firms reporting during that period. Nearly half (46%) of the companies reporting actual results for the fourth quarter were in the financial sector, particularly in the banking industry, contributing to the below-average performance relative to estimates.
Between December 31 and January 19, earnings for the financial sector witnessed a steeper decline of 19.2%, as per the report. However, information technology companies, including Microsoft, Apple, and Intel, played a pivotal role in the overall rebound.
The technology industry's performance has been driven by the continued demand for artificial intelligence (AI) and the technology's long-term potential. Over the past year, these factors have contributed significantly to the results in the technology sector.
As of now, 46% of S&P 500 companies have reported quarterly results for this earnings season. Looking ahead, 104 S&P 500 companies, including four from the Dow, are set to report results in the coming week. This includes companies such as Tyson Foods Inc., Palantir Technologies Inc., Spotify Technology, Mattel Inc., PayPal Holdings Inc., PepsiCo Inc., Canopy Growth Corp., Ford Motor Co., Chipotle Mexican Grill Inc., Snap Inc., and Uber Technologies Inc.
Among the notable reports to watch, McDonald's will provide insights into the impact of the conflict between Hamas and Israel on its business, following reports of free meal distributions to Israeli soldiers. Spirit Airlines, facing uncertainties after a blocked merger deal with JetBlue Airways Corp., will share information on price-cutting competition, travel trends, and efforts to stabilize its finances.
In summary, while challenges persist in the consumer credit landscape, the technology sector, particularly big tech companies, has played a crucial role in offsetting the overall impact on corporate profits during the fourth-quarter earnings reporting season.
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