Buying continues as US earnings season picks up pace

It’s a frantic few days for Wall Street earnings, with big tech’s Apple and Amazon still to come this week. What have we discovered from the early reporters?

A big week of US earnings is off to a positive start after Wall Street giants Coca-Cola HBC AG (LSE:CCH) and General Motors Co (NYSE:GM) today delivered better-than-expected third quarter results.

Shares in both companies opened higher after the Detroit-based car maker pointed to signs of an easing in supply chain pressures and the soft drinks giant raised its full-year outlook as it said higher prices had not dented demand.

About 165 US companies worth the equivalent of 45% of S&P 500 market capitalisation are due to report this week, although most of the interest will be on just five big tech players whose shares are worth about a fifth of the US benchmark.

• Find out about: US Earnings Season | Top US Stocks | Interactive investor Offers

Apple Inc (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:AMZN) are due on Thursday evening and Facebook owner Meta Platforms Inc Class A (NASDAQ:META) after tomorrow’s closing bell, with Microsoft Corp (NASDAQ:MSFT) and Google firm Alphabet Inc Class A (NASDAQ:GOOGL) posting tonight.

Many of the S&P’s early reporters have posted figures ahead of expectations, although the scale of these beats have been below the average seen in recent years.

There’s also been a more cautious forward outlook after Bank of America noted that estimates for the fourth quarter and 2023 earnings had been revised down by around 1%.

The S&P 500 has fallen by a fifth in the year to date, but is up 6% in the 10 days since JP Morgan Chase and other banks reported the first of the results. This momentum has been aided by hopes that the Federal Reserve is close to slowing the pace of interest rate hikes.

Bank of America pointed out today that its clients were net buyers of US equities for the sixth consecutive week, with inflows led by hedge funds and private investors. Institutional clients sold equities after buying for two weeks.

The technology sector saw a fifth week of inflows, with healthcare, and communication services extending their run to eight weeks. Financials and energy stocks saw the largest outflows last week, according to the analysis.

About 100 companies in the S&P 500 have reported so far, but many consumer discretionary stocks - the sector behind the most disappointments in the previous quarter - are not due until the middle of next month.

• Time to buy one of Warren Buffett’s favourite stocks now?
• Four American banks: buy, sell, hold?
• A stock with this kind of consistency is worth paying for

UBS Global Wealth Management said 65% of companies have so far surpassed earnings per share estimates, but notes that this is below the average of 75% over the past five years.

It added: “This is especially striking because third-quarter estimates had been cut by nearly 7% over the last three months, suggesting that the bar was low.”

The Swiss bank also pointed out that earnings growth is tracking at the low end of its 3–5% year-over-year expectation, down from 8% in the second quarter.

UBS said: “We expect this decelerating trend to continue. While we still forecast 7% earnings growth year-over-year for S&P 500 companies in 2022, we project a contraction of 4% next year.”

The bank believes the consequences of restrictive monetary policy for the US economy and corporate profits are not well reflected in consensus forecasts, increasing the potential for further disappointments to come. It favours more defensive parts of the market, such as healthcare and consumer staples.