Is the Party Over? Earnings Could Sour Wall Street's Mood
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What is the main topic discussed in this episode?
Here's your money briefing. I'm J.R. Whalen at The Wall Street Journal in New York. It's the start of the second quarter earnings season, but are investors ready for what could be a difficult and disappointing set of numbers about to come in? In a moment, we'll hear from a herd-on-the-street columnist who thinks no. First, some money and market news you should know. The good news for home shoppers continues. The 30-year fixed-rate mortgage averaged 3.75% in the week of July 11th. That was unchanged compared to a week ago.
How might disappointing Q2 earnings reshape investor expectations on Wall Street?
And since the start of the year, it has only edged higher eight times. Just a year ago, the 30-year averaged 4.5%. Last week, the average 15-year fixed-rate mortgage did edge higher to 3.22%. And the cost of coffee may be going up, and that's because coffee growers in Central and South America who are dealing with the lowest global market price on coffee in a decade want to set a minimum level for how low buyers can purchase coffee beans. Growers in many coffee-producing nations say it costs more to produce coffee than the price farmers are getting for their beans. And coffee growers even wrote to big coffee-buying companies like Nestle and Starbucks, asking them if they'll pay more, but they declined.
As it stands now, Starbucks pays about a dollar for a bag of coffee beans. One bag makes about 48 cups of coffee. If the growers do set a minimum level for the cost of their beans, industry executives don't expect consumers to be paying more for their coffee anytime soon. It could actually take six months to a year to see a significant price change if a minimum price on beans is locked in.
The last few weeks of euphoria where we've seen records fall on Wall Street leads us to the week of July 15th and the start of second quarter earnings season. Heard on the Street columnist Justin Layhart is here with us and says that some investors might not be ready for what's about to hit them.
What short-term market and consumer trends should homebuyers and coffee drinkers know?
So, Justin, at the start of the year, analysts on Wall Street projected second quarter earnings to come in around 6.5%. You don't think it's going to come near that figure?
Yeah, those estimates have come way down, particularly in the last several months.
Why are mortgage rates easing and how has that changed since last year?
So now analysts are predicting that there's actually been a slight contraction in earnings for the S&P 500. That probably won't happen. Usually earnings beat by a bit, but still it's going to be awfully weak.
And even though earnings expectations tend to get lowered as the earnings season nears, it's still going to be a disappointing set of numbers for some people.
First thing, it's just a disappointment that they are weak, especially in the context of a lot of this enthusiasm that we've had in the market, right? It's the other side of the coin, right? So people have been very excited about Federal Reserve cutting rates. Well, why is Federal Reserve cutting rates? Well, it's cutting rates because there's a lot of global weakness, and that's a big part of it, right?
So there's a lot of- Celebration on the back of some bad news.
Right. There's global weakness, and U.S. companies, particularly the big ones that investors care about, have a lot of exposure overseas. So even if the U.S. economy is doing pretty well, I think it's doing okay, they're exposed overseas, and that is hurting results. And then there are some other things going on as well.
In your column, you mentioned some company-specific issues with some big companies like Boeing and Apple that could impact their numbers in the second quarter.
Right. So Boeing, as we know, they've grounded the 737 MAX, and they are taking a big hit on earnings. Earnings look like they'll be down by about a billion dollars from a year ago. That is enough to take down the S&P 500 overall earnings growth by a few tenths of a percentage point. Apple, too, it's not going to have as severe a drop in earnings and percentage terms, but it's a massive company. So their iPhone problems, again, it's going to make a dent not just in their results, but in the results for overall U.S. earnings.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:05–0:35
2
How might disappointing Q2 earnings reshape investor expectations on Wall Street?
0:35–2:05
3
What short-term market and consumer trends should homebuyers and coffee drinkers know?
2:05–2:19
4
Why are mortgage rates easing and how has that changed since last year?
2:19–4:25
5
How could a minimum price for coffee beans affect consumer prices and timing?
4:25–5:45
Speakers
2 identifiedMore from WSJ Your Money Briefing
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