There are times when investor sentiment turns so sour that the good gets thrown out with the bad. We are experiencing this phenomenon now as companies’ earnings announcements appear frequently meaningless and stock prices plunge on otherwise decent announcements. Except for a few weak spots (namely sentiment, inflation, and wage growth), the economic data remains solid. However, the market is forward looking, using extrapolation and historical events to try and predict what’s going to happen three, six, and twelve months out. Sometimes it gets it right but every now and again it overreacts and gets it quite wrong. While we can’t ignore that Inflation is a problem, we must also recognize that the Federal Reserve is just one interest rate hike into what will ultimately be a long process. Realistically, it will be some months before we know how well the current tightening policy is going. On the topic of earnings announcements, what we’ve seen so far has been good. The majority of companies are beating expectations on both the top and bottom line. And while input costs, in terms of materials and labor, are certainly on the rise, companies have been able to pass along those costs to consumers who appear willing and able to bear it. Just this week these companies reported earnings and here’s what they’re revenue growth looks like year-over-year:
Coca Cola +16.7%, Google +23.0%, Microsoft +18.5%, Visa +25.0%, Qualcomm +41.1%, Merck +49.6%, Chevron +69.7%, Exxon Mobil +53.0%, Facebook +6.6%, Paypal +7.8%, Linde +13.3%, Amazon +7.3%, Apple +8.6%As you can see above, companies are not suffering from a lack of revenue growth. Even those companies that are growing more slowly, like Amazon and Apple, are pulling in quarterly revenue of $116B and $97B respectively. Worth noting is that these growth rates are on top of stellar growth in 2021.
As for Gross Domestic Product (GDP), the markets were thrown for an anomaly this week. It was reported GDP fell 1.4% in the first quarter versus an estimate for 1.1% growth. While this sounds troubling, it can be explained and is not as bad as it may first appear. The drop in GDP resulted from lower inventory investment, exports, federal government spending, and state and local government spending. At the same time, imports, which are subtracted from GDP, increased sharply. It was the perfect storm of economic data that created this anomaly. What should be noted is personal consumption rose 2.7% and makes up 67% of GDP. It shows little sign of slowing.
In company news, Duke Energy is making headway in growing renewable energy. The company increased its capacity to produce wind and solar power by 20% in 2021. Wind and solar accounted for 9% of Duke’s total capacity in 2021, up from 5.6% in 2020. The company has set a target of 40% renewable energy by 2050. Along the same lines, the Biden administration is doing away with old-fashioned incandescent lightbulbs, 143 years after Thomas Edison patented the first commercially successful one in 1879. Incandescent bulbs will be phased out by July 2023.
In closing, I want to share with you some options if you’re not too happy with the current administration, the previous administration, or the perceived direction of the country and/or the economy. Every year, the United Nations compiles the World Happiness Report which draws on global survey data from people in about 150 countries. Marking its 10th anniversary, the report found there has been a large increase in benevolence including donating to charity, helping a stranger, and volunteering. They attribute the sharp rise to the past two years of COVID. But onto the meat of their report, the following are the top ten countries in order of happiness: Finland, Denmark, Iceland, Switzerland, Netherlands, Luxembourg, Sweden, Norway, Israel, and New Zealand. I don’t know about you, but New Zealand sounds pretty good right about now. Now you know.
Bruce J. Mason, MBA