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Powell said it's time to cut: Will the market go wild?
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Here is the Summary of U.S. Q2 Earnings Season. Which Industries Are Showing Signs of Recession?

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Investing with moomoo joined discussion · Aug 19 07:37
A statistical analysis of companies that have released their financial reports indicates that three industries are showing strong signs of expansion, which offset the signs of weakness in 19 other industries. This weakness is leading to outright deflation in some sectors, increasing the likelihood of layoffs.
■ Industries with potential for stronger economic activity: AI, defense, investment banking
1) Tense geopolitics are driving defense spending and industrial production
Conflicts in Ukraine and the Middle East have boosted defense industry orders. $Lockheed Martin (LMT.US)$ raised its sales and profit forecast for this year. The company expects 2024 sales to be between $70.5 billion and $71.5 billion, versus $68.5 billion to $70 billion forecast earlier. In addition, military engine maker $Howmet Aerospace (HWM.US)$ has led the sector higher this year. The list of such "positive" companies is likely to grow.
Here is the Summary of U.S. Q2 Earnings Season. Which Industries Are Showing Signs of Recession?
2) AI is attracting more capital spending
Before Nvidia released its financial report, the earnings of several companies whose revenue was directly related to AI exceeded expectations. For example, $IBM Corp (IBM.US)$ 's revenue and adjusted earnings per share were higher than expected in Q2, with its EPS reaching $2.43 adjusted vs. $2.20 expected. IBM said it's seeing more business tied to generative artificial intelligence. $Advanced Micro Devices (AMD.US)$ 's second-quarter results also topped projections, and the company raised its forecast for MI300 chips.
Here is the Summary of U.S. Q2 Earnings Season. Which Industries Are Showing Signs of Recession?
3) Investment banking benefits from strong capital markets
$Goldman Sachs (GS.US)$ ' second-quarter revenue and earnings per share beat expectations, and investment banking fees rose by 21%. The investment bank giant raised its dividend. $JPMorgan (JPM.US)$ beat second-quarter revenue estimates thanks to strong investment banking business too.
■ Industries that are in decline include automobiles, transportation, real estate, catering & apparel, and non-AI chips, etc.
1) Weak sales and oversupply force automakers to cut prices
Due to high interest rates weakening US consumers' interest in new cars, automakers and dealers are significantly reducing prices to offset the impact of weak demand. According to data from Motor Intelligence, the average incentive program for new cars has increased by 53% year-on-year. Manufacturers such as Hyundai, $General Motors (GM.US)$ , and Volkswagen are offering cash rebates, low interest rates, and price reductions to stimulate demand and clear inventory.
Here is the Summary of U.S. Q2 Earnings Season. Which Industries Are Showing Signs of Recession?
▶ $Ford Motor (F.US)$ said second-quarter net income fell by 4% and adjusted operating profit fell due to higher warranty costs and the launch of new models, while the company continued to lose money on its electric vehicle business.
▶ Profit for $Stellantis NV (STLA.US)$ , which owns the Jeep, Peugeot and Fiat brands, fell 48%, well below expectations. Its CEO said, "This year, developments in the industry and competitive landscape have unfolded faster and have been more challenging than we anticipated. "
▶ $Tesla (TSLA.US)$ also faced difficulties after Elon Musk's electric car maker reported a 45% drop in quarterly profit. It also confirmed that the much-anticipated launch of Robotaxi will be delayed by two months to October.
2) The airline sector is facing excessive competition
▶ $Delta Air Lines (DAL.US)$ Lines reported a significant decline in profits for the second quarter, attributing the drop to an excess of flights during the peak summer travel season. The CEO of Delta Air Lines stated that there is an oversupply of seats, particularly in the budget market, and the airline is discounting domestic fares to fill these vacancies.
▶ $Southwest Airlines (LUV.US)$ and $American Airlines (AAL.US)$ have significantly lowered their profit forecasts for the year. American Airlines announced that the company is struggling to address an industry-wide excess supply, as well as the impact of strategic missteps leading to the loss of corporate clients and travel agencies. Its profits have fallen by 46% compared to the same period last year. JetBlue also plans to withdraw from more cities by 2030 and beyond.
Here is the Summary of U.S. Q2 Earnings Season. Which Industries Are Showing Signs of Recession?
3) Restaurant industry revenue and employment are both stagnating
Affected by inflation, customers are eating out less frequently. Most companies' financial reports reflect people's spending pressure.
▶ $The Wendy's Co (WEN.US)$ plans to cut working hours to mitigate the impact on labor costs due to California's $20 minimum wage increase.
▶ $McDonald's (MCD.US)$ 's has introduced "Free Fries Friday" in an effort to win back customers affected by inflation.
▶ $Domino's Pizza (DPZ.US)$ reported an increase in orders last quarter, but the stock price of the world's largest pizza chain (by number of stores and sales) fell 14% after earnings were announced. The company had previously warned that the number of new stores opening this year would be significantly less than previously expected.
Here is the Summary of U.S. Q2 Earnings Season. Which Industries Are Showing Signs of Recession?
4) Commercial real estate is still deteriorating
The real estate firm Cushman & Wakefield found that the vacancy rate for office spaces continued to rise in the second quarter, with San Francisco's vacancy rate reaching a record 34.5%, up from 33.9% in the first quarter.
According to data from the Eviction Lab at Princeton University, over the past year, the number of tenant eviction filings in six cities and their surrounding metropolitan areas has increased by 35% or more compared to the standard before 2020.
The collapse of the commercial real estate market is spreading to the bond market, with defaults on the rise. The real estate division of $Blackstone (BX.US)$ Group dragged down the investment giant's performance in the second quarter. High interest rates have depressed real estate valuations, and investors have reduced their capital commitments to the sector.
Here is the Summary of U.S. Q2 Earnings Season. Which Industries Are Showing Signs of Recession?
5) AI bubble masks semiconductor weaknesses
Sales of non-artificial intelligence chips have declined, and inventories are rising.
▶ The automotive industry's demand for chips remains weak, leading $STMicroelectronics (STM.US)$ to once again lower its sales and profit margin forecasts for the year.
▶ $NXP Semiconductors (NXPI.US)$ ' revenue forecast for the third quarter was below the median analyst expectation, causing the company's stock price to drop by as much as 9% at one point.
Here is the Summary of U.S. Q2 Earnings Season. Which Industries Are Showing Signs of Recession?
6) High-end consumption and even general retail confidence are lacking, leading to reduced spending
▶ $LVMH Moet Hennessy Louis Vuitton (LVMUY.US)$ led the decline in luxury stocks after the company reported sales lower than expected due to consumers reining in spending on champagne and handbags. LVMH's revenue grew by 1%, which was below the broadly expected market growth of 3%.
▶ Kering Group, the parent company of Gucci, anticipates a continued decline in profits for the year, following a double dip in profits and revenue in the first half of the year. The company expects its operating income to decrease by about 30% year-on-year in the second half.
Even in the consumer goods sector, there are signs of decline:
▶ $Procter & Gamble (PG.US)$ announced quarterly sales that were below analysts' expectations, and the manufacturer of Pampers diapers and Tide detergent slowed down its pace of price increases.
▶ Nestlé has lowered its full-year sales forecast. Earlier, as consumers with tight budgets continued to look for cheaper alternatives, Nestlé slowed down its pace of price increases.
▶ Shoppers tired of inflation have finally begun to cut back on their consumption of potato chips. $PepsiCo (PEP.US)$reported that global revenue grew by 1% in the June quarter, while sales volume decreased by 2%. Its North American beverage business saw a 3% decline in volume. Inflation in the United States is slowing, but consumers are feeling the cumulative impact of years of sharp price increases.
Overall, the slowdown in economic activity across various industries is being transmitted from weak sales activities to the job market. Renowned human resources firm Robert Half indicated: The continued presence of macroeconomic and interest rate uncertainties is perpetuating caution among clients and candidates, which continues to impact recruitment activities and the initiation of new projects.
A slowdown in revenue could trigger a downward spiral in consumption. The Citi Economic Surprise Index has shown that the U.S. economy has been underperforming expectations for several consecutive months. These indicators, along with second-quarter earnings reports, collectively suggest that the United States is exhibiting some early signs of recession.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more
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