Big companies rake in stronger profits than expected in second quarter
Profits held up far better in Q2 than folks on Wall Street expected.
Why it matters: Corporate America's resilient bottom line is another indication that the economy could pull off the much-ballyhooed soft landing.
The latest: Target and Walmart closed out the weeks-long earnings extravaganza on an upbeat note, with both beating profit bogeys this week.
- Target actually cut its full-year expectation for profits, but a lot less than Wall Street expected — which counts as good news.
- Walmart raised its full-year forecast on Thursday.
The big picture: The second quarter was a strong one for profits, with nearly 80% of S&P 500 companies reporting numbers that were better than Wall Street analysts had forecast.
- According to data provider Refinitiv, Q2 2023 had the highest rate of companies beating expectations since Q3 2021.
Between the lines: While top-line revenue growth has been a bit disappointing — mirroring a slowdown in inflation that made raising prices tougher — companies have been able to preserve, and in some cases even fatten profit margins.
- That's because the price pressures companies face from suppliers have fallen a lot faster than the prices they're charging customers.
💭 Our thought bubble: A clear signal on whether earnings season was "good" or "bad" can be found in the way Wall Street analysts change their forecasts in response, charted above.
- You can see that after companies started reporting Q2 results, analysts sharply ratcheted up their expectations for the profits that these companies will earn over the next 12 months — just like they did during the Q1 earnings season.
- In other words, analysts liked what they saw in the results — and what they heard from executives.
The intrigue: Conventional wisdom suggests a rising earnings outlook should drive stocks higher. But as we've argued before, conventional wisdom overstates how much the stock market's moves are related to profitability.
- In fact, the S&P 500 is down about 3% since the start of earnings season, but that's largely because of the rise of interest rates.