Earnings season for the first quarter begins, labor market and wages in the United States.

Chart of the Week

The overview shows which companies are publishing their first-quarter 2024 earnings and when this month.

Why this matters

In recent quarters, investor sentiment has followed the same pattern. Toward the end of each quarter, concerns grew that the economy was not cooling down and that the US Federal Reserve might therefore cut interest rates less than expected. These fears pushed markets lower. Then, on average, companies delivered excellent earnings results and everything was forgotten. The stock market turned upward again. Will the same happen this quarter?

Earnings season usually begins with the banks (1, black circle). This provides an early general insight into how the economy performed in the first quarter. The next major event that will attract significant attention is April 18 (2, black circle). On that day, TSMC, the world’s largest semiconductor manufacturer, and Netflix will report their results. This offers the first insight into the technology and streaming sectors.

Traditionally, however, the most important week is Week 4 (3, black circle). This is when most of the Magnificent 7 companies report their quarterly results: Microsoft, Google, Tesla, Facebook, and Amazon. Nvidia traditionally reports somewhat later, only on May 22.

One week later, on May 1, the next meeting of the U.S. Federal Reserve is scheduled.

Anyone still planning to go on a spring holiday is best advised to do so before April 23. From April 23 to May 2 are must-watch days to stay on top of investments.

The chart shows the historical quarterly change in the average corporate earnings of the S&P 500 (blue line). In the last quarter, this increased by 8%. For the first quarter of 2024 (orange line), a 5% increase is expected. The reason for the slight slowdown is declining margins:

As labor market costs have increased somewhat in recent months, margins are generally expected to decline slightly. However, they are expected to improve again for the remainder of the year. Particular attention will be paid to companies’ explanations and especially to their outlook for the coming year.

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Labor market and economic conditions in the United States.

Last Friday, new figures on labor market developments were released. The labor market continues to remain strong. The chart above shows the average trend in newly created jobs over the past 10 years in blue, last year’s figures in green, and this year’s figures in red. There are no signs of an economic slowdown or even a recession. This reduces the likelihood of an interest rate cut and was therefore poorly received by the markets.

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The chart shows the details behind the newly created jobs. Only the transportation and warehousing sector saw a decline in jobs, while all other sectors added new positions. The increase is therefore not due to a special situation in one industry, but rather reflects strength across the broader economy.

The chart above is causing some concern. Wages for employees changing jobs have increased significantly (blue line). This is likely to be reflected in higher inflation figures soon. Here too, it is a sign that inflation could rise and that the US Federal Reserve may not cut interest rates.

Rising labor costs are primarily a challenge for the service sector. In this sector, wages are one of the largest cost factors.

The chart highlights the current dilemma. In the industrial sector (represented by the Purchasing Managers’ Index for manufacturing, light blue), the economy is in a recession. However, the service sector (represented by the index showing consumer spending in services, dark blue) continues to perform very strongly, offsetting the weakness in manufacturing. If wages in the service sector now continue to rise, this could have a greater impact on inflation than usual.

The battle between the bulls (investors expecting rising markets) and the bears (investors expecting falling markets) continues.

At the moment, the bears have the upper hand, and a cautious investment approach is warranted. Holding slightly more cash than usual makes sense in order to buy in at more attractive levels.