Axios Markets

Despite widespread fear that first-quarter earnings would be ugly, they arrived much better than expected, Matt writes.

Why it matters: Weeks of updates from big-league American corporations have shown few worries about recession among the corporate class.

The latest: The first-quarter earnings season effectively finished last week with a flurry of results from retailers.

• Walmart, Target, TJX and Home Depot all posted better-than-expected profits, though rising theft weighed on Target and Home Depot's top-line sales numbers underwhelmed.

The big picture: With Q1 numbers in hand for about 475 of the 500 companies in the benchmark S&P 500 index, we can tell you they were a lot better than analysts had predicted.

• Going into earnings season, which began April 14, analysts were expecting a nearly 7% year-over-year drop in earnings per share for S&P 500 companies.
• That would have been the worst profit tumble since 2020.
• In fact, the numbers weren't near that bad. Earnings per share did sink, but only by 1.5%.

Context: The S&P 500 posted all-time high earnings per share in 2022 — so being just shy of that pace is nothing to sneeze at.

Be smart: Those more interested in the economy's overall health tend to look at top-line sales numbers for the S&P 500, rather than bottom-line profits.

• Sales are actually growing at a peppy 5% year-over-year clip.

Yes, but: Despite the rosy takeaways, it should be noted that technically speaking, Q1 was the second consecutive quarter of year-over-year declines in S&P earnings.

• Some refer to that as an "earnings recession," though that's stock market jargon, and not what economists would consider a thing.

The bottom line: The numbers were good, and investors and traders seemed to have noticed.

• All it took was a couple of decent headlines about progress on the debt ceiling to push the index to a new 2023 high on Thursday.

A quick glance at the top performers since the start of earnings season gives you a sense of the vibes in the market at the moment, Matt writes.

The takeaway: Big winners include companies that stand to benefit from the resilient U.S. consumer and the semiconductor companies that sell the picks and shovels needed to drive the artificial intelligence investment boom.

• Context: The best-performing sectors over earnings season were communications services and information technology, where AI chatter is some of the most pervasive.

What they're saying: "The topic of AI was frequently discussed on company earnings calls and was mentioned in calls across all sectors, particularly within the Information Technology and Communication Services sectors," wrote analysts with Goldman Sachs.

• "Our economists estimate that AI could potentially drive roughly $7 trillion in global economic growth over 10 years and our equity analysts estimate a Generative AI Software [total addressable market] of about $150 billion," they added.

🚨 Debt ceiling talks enter a make-or-break phase. (Axios)

✨ Meta fined $1.3 billion over the transfer of EU user data to U.S. (CNBC)

🇨🇳 China bans U.S. chipmaker Micron as a supplier. (Axios)

💰 Allen & Overy is merging with Shearman Sterling in $3.4 billion deal. (FT)

Rent is growing faster than incomes around the country, putting additional pressure on inflation-burdened households, Emily writes.

State of play: The median renter in the U.S. would need to spend 29.6% of their monthly income on an average rent in the first quarter of 2023, per a report from Moody's Analytics.

• That's an "uncomfortably high" ratio, per Moody's — though it's a slight dip from last year when the rent-to-income threshold crossed 30% for the first time ever.

And the rub? It's still cheaper to rent than buy in the vast majority of the U.S.

• A new Redfin report says there are only four major metro areas in the U.S. where a typical home has a lower monthly mortgage cost than its estimated rent — Detroit, Philadelphia, Cleveland and Houston.

Context: Back in 1999, New York was the only "rent burdened" metro area in the U.S. (more than 30% of income spent on rent), according to Moody's.

• By the end of last year, six metros had joined that pricey club — Boston, Northern New Jersey, Palm Beach, Fort Lauderdale, Miami and L.A.
• Rents surged during the pandemic for a variety of reasons, and they remain high now partly as a side effect of surging mortgage rates. Those rates are keeping would-be first-time homebuyers on the sidelines — and that's pushing up demand for rentals.

Go deeper: You can explore average rental costs around the country on Moody's website.