There are macro cross-currents: earnings are still good, but stocks are acting like the economy is slowing, and consumer sentiment has turned cautious. Are you still confused? Some wish to trade the market based on a soft landing, others are keen to trade on a recession. The markets are uncertain, but parts are acting as the consumer is slowing down. Elon Musk has joined General Motors and Ford in saying he is wary of expanding production of electric vehicles out of concern that higher borrowing costs could discourage customers. Tesla opened down 6%. Pool Corp., which distributes swimming pools, also seems to think the consumer is more cautious. They beat modestly on the top and bottom lines, but CEO Peter Arvan said, “pool construction activity remained weaker as challenging macroeconomic factors continue to weigh heavily on major project consumer spending.” Revenue fell 9% year over year. The freight recession, which was very evident in JB Hunt’s big drop on Wednesday due to poor earnings, is again evident in Union Pacific’s results, which showed a modest hit but were light on earnings. The railroad continued to see a drop in car loads, which fell 3%. Then there was the dire behavior on Wednesday in the global industries, with stocks like Ingersoll-Rand, Parker Hannifin and Caterpillar all down in the 5 percent range. Higher rates and higher borrowing costs were widely cited as the reason for the fall in industries, but there was also this: business conditions at architectural firms worsened in September. The AIA/Deltek Architecture Billings Index, a measure of performance at major architecture firms, reported the lowest levels in September since December 2020, during the peak of the pandemic. The index “indicates that the share of firms reporting declining invoices has increased significantly. In addition, the value of newly signed design contracts also declined in September, indicating that there is a growing reluctance among clients to sign contracts committing to new projects.” Major infrastructure firms such as Donaldson, WESCO, AECOM and Watsco were all down 4%, as were Ingersoll-Rand and Parker Hannifin. Construction infrastructure was also hit, including Vulcan Materials, Martin Marietta and Fluor. Parker-Hannifin and Ingersoll Rand are up more than 1% today, but Caterpillar is down nearly 1%. Earnings are still good, but not as strong as the early reporters Seventy-eight companies (about 15% of the S & P 500) have reported so far, and while the average earnings beat is still good (5.5%), it is lower . than the pace of the companies that reported earlier. Revenue growth at 2.8% is good but also lower than the earlier reports. That is likely to decline further, especially after energy companies report an expected decline in profits. Revenue growth, at 6.4% is still strong. S & P 500 earnings (78 companies reporting) Avg. earnings beat: 5.5% Revenue growth: 2.8% Revenue growth: 6.4% Source: Earnings Scout Welcome to “higher for longer limbo” The bottom line: there is no escape velocity without relief on bonds. Jobless claims again came in lower than expected, the odds of a recession still seem slim, but inflation hasn’t fallen enough for the Fed to start talking about cutting rates. Call it “higher for a longer limb”.
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