Global earnings are just good enough to feel disappointing for investors

Global companies are revising down their full-year sales and profit forecasts due to higher interest rates and a sluggish Chinese economy. Notable disappointments include McDonald's, Tesla, and Nestle. Despite decent earnings in the US and Europe, consumer stress and cautious spending in China weigh heavily. The tech sector, including giants like Apple and Microsoft, may provide a boost, but mixed results have left investors wary, reflecting the challenging economic landscape..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..Join us for BizNews' first investment-focused conference on Thursday, 12 September, in Hermanus, featuring top experts like Frans Cronje, Piet Viljoen, and more. Get insights on electricity and exploiting SA's gas bounty from new and familiar faces. Register here..By Medha Singh.Companies worldwide are lowering full-year sales and profit guidance as higher interest rates and weakness in China's economy hurt global consumer sentiment, taking the shine off earnings growth in the latest quarter. .___STEADY_PAYWALL___.A number of high-profile companies have underwhelmed investors, including McDonald's, automakers Nissan and Tesla, and consumer giants Nestle and Unilever. With roughly 40% of U.S. and European companies reporting results, earnings have come in about as expected – but after the strong run by world equity markets, 'about as expected' seems like a disappointment.."A very mixed season so far in terms of results," said Brian Mulberry, client portfolio manager at Zacks Investment Management. "We're starting to see the pressure that the higher-for-longer interest rate environment is putting on companies and their ability to continue to drive earnings and revenue growth.".The earnings season will get a jolt this week from the globe's tech giants, including Apple AAPL.O, Microsoft MSFT.O and Samsung Electronics 005930.KS, Japan's Toyota Motor 7203.T, oil titans Exxon Mobil XOM.N and Shell SHEL.L and European retailers L'Oreal OREP.PA and Adidas ADSGn.DE..Global companies have zeroed in on two issues hitting their bottom lines: higher interest rates that are pinching consumer spending, and underperformance in China's economy, the second-largest in the world..McDonald's reported its first drop in sales worldwide in 13 quarters, citing weakness in China's economy. Companies including Unilever, Visa and Aston Martin also noted weakness in China, and analysts have warned that demand in the Asian giant is unlikely to reverse while a protracted property downturn and job insecurity weigh on consumers..Read more: 🔒 FT: What caused the huge global IT outage?."The Chinese… are not willing to spend because they are afraid about the future," said Stefan-Guenter Bauknecht, portfolio manager at DWS. Until growth improves in China, the country will be "the weakest of the big regions, or at least the most far behind expectation," he said..Earnings per share have so far risen by nearly 12% in the United States from a year ago, the strongest quarter out of the last 10, according to LSEG data. Earnings are up 4% in Europe, according to Bank of America Securities, slightly ahead of market expectations and for Europe the first positive growth rate since 2022..Consumer weakness is being flagged across industry sectors and guidance cuts have picked up, the brokerage said. U.S. companies have reduced third-quarter forecasts to 7.3% year-over-year growth as of Friday from 8.6% at the beginning of July, according to LSEG data.."While Q2 results overall have been decent, the season has nonetheless spooked the market on signs of consumer stress," Bank of America analysts said in an research note..Nestle NESN.S and Unilever ULVR.L both reported first-half sales growth below expectations. Companies in the euro zone's two largest economies are growing more pessimistic, raising concerns over the bloc's sluggish recovery.."There is value-seeking behavior among consumers. There is pressure, especially at the low-income range," Nestle CEO Mark Schneider said on a call with journalists..Auto companies are facing difficulties in the United States, where high inventories and logistical issues hurt profits of Ford Motor F.N, Stellantis STLAM.MI and Nissan 7201.T. EV leader Tesla TSLA.O disappointed investors with its results, and many still see the company as far overvalued with EV sales slowing..EV battery firm LG Energy Solution 373220.KS, which supplies Tesla and Hyundai Motor, forecast revenue would fall more than 20% this year due to a sharper-than-expected slowdown in global EV demand. Its bigger rival, China's CATL 300750.SZ, reported a 13% drop in second-quarter revenue..Read more: 🔒 Global IT outages shouldn't become a recurring nightmare: Parmy Olson.CASHING IN CHIPS.The earnings news has hardly been all bad. Google parent Alphabet's GOOGL.Ogrowth in cloud computing revenue augurs well for other tech bellwethers later this week. Industrial conglomerate 3M's results sent its shares to near a two-year high, while automaker General Motors GM.N and pharmaceutical giant Johnson & Johnson JNJ.N posted strong earnings, and banking giant JP Morgan JPM.N said its profit hit a record..Asian chipmakers have turned more bullish about demand outlook as they benefit from the global AI boom that has helped it weather the tapering off of pandemic-led electronics demand.."AI is so hot; right now everybody, all my customers, want to put AI functionality into their devices," TSMC 2330.TW Chairman and CEO C.C. Wei said at an earnings conference, adding AI demand now is more real than two or three years ago. Shares of TSMC have gained 56% so far in 2024..Despite upbeat forecasts, shares of major Asian chipmakers are under pressure to keep up with rising expectations. That's evident as well in the performance of AI leader Nvidia NVDA.O, whose value surged past $3 trillion earlier this year before pulling back in the summer.."Investor expectations are so high they may be hard to meet, and in the short term, the stock price may not rise as much," said analyst Lee Min-hee at BNK Investment & Securities..The broad-market MSCI International index has gained 11% so far this year, peaking earlier this month before selling off, in part due to hopes that the U.S. Federal Reserve will begin cutting interest rates after similar moves from other central banks.."To the extent that lower rates ahead remains the popular view, analysts are unlikely to be lowering overall earnings projections for next year," Rick Meckler, partner at Cherry Lane Investments..Read also:.🔒 Namibia prepares to become global hotspot as oil boom ignites economic transformationIvo Vegter: Global laws threaten to erode online privacy for imagined safetyDavid Shapiro predicts strong Rand surge amid global market optimism.SOURCE: REUTERS

Global earnings are just good enough to feel disappointing for investors

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