The Corporate Earnings Boom Leaves Some in a Bust
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What is the main topic discussed in this episode?
With your money briefing, I'm J.R. Whalen at The Wall Street Journal in New York.
How did October–November market turmoil change investor behavior?
The corporate earnings boom has left many investors' spirits in more of a bust. We'll explain in a moment how they've smartened up their investment strategies to capitalize on earnings in an economy many feel is due for a downturn. First, these money and market stories you should know. Labor shortages and rising regulatory costs have held down single-family home construction for several years, and that has sent jitters to the homebuilder sector. Homebuilders' confidence in the housing market fell this month to the lowest level in two years. The drop reflects builders' rising concerns over faltering demand in light of climbing interest rates and home prices. And researchers from the University of Virginia and Northwestern University studied a 40-year panel of all public school teachers and principals in New York State in order to determine how female principals affect rates of teacher turnover.
The study shows that male teachers are roughly 12% more likely to leave their schools when they work under female principals than under male principals. It turns out there was no such effect for female teachers. And men who leave don't typically end up working for another woman.
Which sectors are now showing broader earnings growth beyond technology?
The study indicates, quote, opposition from male subordinates could inhibit female progress in leadership.
The saying goes that slow and steady wins the race. That could be true on Wall Street as investors shake off October's market pullback and seek out more wise investments. And Wall Street Journal markets reporter Akani Ohtani is here with some details for us. So, Akani, this is a cautious move by investors looking for companies with steady earnings growth rather than betting on companies that look like they'd see a quick run up.
That's right. And that is a shift in behavior from what we saw earlier in the year. Basically, as we see the economy pick up, we start to see sectors that hadn't been doing so well start to post impressive earnings growth again.
How are interest rates and wage gains affecting corporate profits and volatility?
And so it's not just the technology sector that is posting better profits every year, we're now starting to see companies in the consumer space, in the energy space, industrials, sort of you name it, we're seeing broad earnings growth lift those profits higher. And so a lot of the folks that I've spoken to have said, we don't just have to bet on technology anymore. And in fact, it might be safer to take a chance on sort of more stable companies like Starbucks, for instance.
Do investors expect a recession soon and how are they positioning portfolios?
And so that's really what is sending investors looking around for companies, as you point out in your story, that hold up better if the economy were to slow down.
The bet is that as the economy starts to slow down more, interest rates take a greater toll on profits. We're going to start to see a retreat from sort of the riskier parts of the stock market that had done really well earlier in the year when people were feeling a lot better about global growth and the prospects for U.S. growth as well.
Why are investors favoring companies that can withstand an economic slowdown?
And so that's why we started to see a retreat from some of the so-called Fang names, Facebook, Apple, Amazon, Netflix, Alphabet, and more of a shift into companies that were sort of overlooked earlier in the year.
Now, you mentioned interest rates playing a role in adjusting the corporate earnings landscape, but also more money in people's pockets with wages.
What big hedge-fund moves signal a rotation away from FANG stocks?
That money has to come from somewhere, and it will likely come from corporate profits.
And I think those are a number of the reasons why we've started to see more volatility across markets in the last several weeks. Because, as you may remember, stocks really rallied at the start of the year. And it wasn't just the U.S. It was really global markets. But in the past couple of months, we've seen a number of indexes around the world fall into correction territory. A number of the FANG names fall into bear market territory. And a lot of folks just feeling a bit more pessimistic than usual about what's to come for U.S. markets. So I think it's natural as we see that shift happen that investors sort of change what types of companies they want to buy in.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:09
2
How did October–November market turmoil change investor behavior?
0:09–1:15
3
Which sectors are now showing broader earnings growth beyond technology?
1:15–2:08
4
How are interest rates and wage gains affecting corporate profits and volatility?
2:08–2:35
5
Do investors expect a recession soon and how are they positioning portfolios?
2:35–3:04
6
Why are investors favoring companies that can withstand an economic slowdown?
3:04–3:26
7
What big hedge-fund moves signal a rotation away from FANG stocks?
3:26–5:54
Speakers
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