Earnings season has kicked into high gear today and investors aren’t entirely sure what to make of the numbers.
On the one hand brands like Coke and McDonald’s have proved incredibly resilient, with customer loyalty helping them maintain sales. Coca Cola’s been able to pass on price hikes to consumers who seem more than happy to pay a premium for their beverage of choice. Some things are sacrosanct and if you’re a Coke drinker generic cola just does not do the job, and paying a little more per can won’t break the bank even if you’re watching almost every penny.
AJ Bell’s Russ Mould said: “By contrast McDonald’s is acutely aware that consumer behaviour is beginning to change and knows many are turning to the kind of value options which it is primed to provide. Fast food at a great price means restaurants like McDonald’s usually do pretty well when our finances get squeezed, and the tone today was pretty upbeat if understandably cautious. Although the business will still need to look carefully at margins as it navigates higher wage and commodity prices.
“But a decent showing from these household names still hasn’t been enough to quell nerves set on edge after a rather dismal outlook from Walmart. The results have undermined confidence in the retail sector both in the US and in the UK. Consumers are simply cutting back on discretionary spend, leaving big ticket items on their wish lists and hunting for value except for the odd, affordable treat. Wickes profit downgrade sticks with the same script. Many homeowners blasted through their DIY projects during lockdowns but now people are growing worried about costs and home improvements on the slate are less likely to get green lit as a result. Marks and Spencer, JD Sports and B&M are just a few names from the sector which have seen share prices plummet today.
“Top of FTSE 100 pile today is outsourcing giant Compass. The catering company took a beating during Covid lockdowns when offices and schools shut. Post restrictions it is going from strength to strength, most notably attracting new business drawn to its pricing power which makes it a more affordable option for smaller companies. It has also been boosted by a summer of big events, from sports to music – people are embracing the opportunity to experience the magic of live and in person once again. It’s all about choices and less free cash in the bank means less choice so people are making sure when they do spend, they do so wisely for maximum enjoyment and return.
“Perhaps the biggest news of the day will come after Wall Street’s closing bell. Microsoft and Alphabet have the power to lift investor sentiment or send it plummeting into despondency. Tech might have been drifting out of favour since the start of the year, but these mega caps still carry a huge amount of weight. They also give global insight into how economies around the world are faring and, with growth forecasts cut by the IMF once again today, there’s no escaping the damage inflation is doing.”