As the third quarter earnings season kicks off, Apollo Global Management chief economist Torsten Sløk joins Market Domination to break down what he expects this time around.
On the consumer front, Sløk notes that high-end consumers are doing well since they “generally own the S&P 500 (^GSPC), generally own their home,” and have high levels of cash flow. However, lower-income households are struggling as delinquency rates rise for credit cards and auto loans. In addition, low-income households are either low or out of savings while high-income households are seeing a rise in their prospective savings.
“It is a very bifurcated outlook for the consumer where net-net, the result is still that the overall picture for consumption is holding up,” Sløk tells Yahoo Finance.
Meanwhile, he explains that “Corporate America is still doing well.” He notes that profit margins are at high levels, and companies are benefitting from several tailwinds, including AI, interest rate cuts, and the energy transition. In addition, he points to tailwinds from the Biden administration’s CHIPS Act, Inflation Reduction Act, and Infrastructure Act as giving corporations a boost.
Ultimately, Sløk expects corporate earnings to continue to do well during the third quarter earnings season.
Note: Apollo Global Management is Yahoo’s parent company.
For more expert insight and the latest market action, click here to watch this full episode of Market Domination.
This post was written by Melanie Riehl
Torso.
I’m I’m curious as we head into this new earnings season here, Um, broadly speaking, how does the consumer look to you, Torsten, You know, last earning season.
You listen to a lot of CEO S and CFO S on the conference calls.
You heard about a consumer that was, uh, selective, Torsten?
Uh, discerning, more focused on what they need rather than what they want.
Is that still the trends?
That’s still the theme, I think Absolutely joy.
There is a lot of nuance when it comes to the consumer.
Because if you look at the stock price of Ferrari being at all time highs and the stock price of dollar general being at all time lows, it really does tell you what’s going on.
Amy, that high end consumers are generally still doing fine because high end consumers generally own the S and P 500.
They generally own their home and the cash flow they get from their fixed income holdings still very solid because the level of interest rates is still very high in private credit.
The level of cash flow and the level of yields remains very high relative to what we’ve seen in the last 20 years.
On the other side, you’re seeing for low income households that there is more signs still of delinquency rates going up for credit cards for low income households, distinct ency rates going up on auto loans.
You’re also seeing in terms of savings.
Low income households are out of savings, whereas high households are seeing an increase in their savings.
So in short, it is a very bifurcated outlook for the consumer, where net net.
The result is still that the overall picture for consumption is holding up.
When you look at the in particular the weekly data from red book sales, that shows you that consumers are still doing fine.
But you’re right.
There’s a lot of nuances within, in particular discretionary spending that becomes very much a function of which segment of consumers is it that we’re looking at, uh, and interested overall, when you zoom out and look at corporate profits and in particular I know you highlighted in your chart book, um, corporate profit margins, those weekly forward profit margins that they’re at a record high, and we’ve heard the mo you know, we’ve heard people say before Oh, we’re getting the peak margins and it’s gonna roll over.
We’re getting the peak margins and it’s gonna roll over.
And they did roll over, I guess, in 22.
But then they came back.
Uh, how much is this going to support the further gains in stocks If you know all of this other stuff aside, if margins are still growing?
Absolutely.
Corporate America is still doing well, and profit margins, as you exactly are highlighting, is indeed at very high levels.
So why is this important?
Because if we think back to what creates a recession in 2020 we got a recession because of covid.
That was a big shock.
2008.
We got a recession because of Lehman Brothers.
Of course, that was a big shock.
Prior recession was in 2000, 2001.
We saw the S and P go down 50%.
That also generated a somewhat mild recession, but it did generate a recession.
But if we look at the data and we look at the situation today, there is no similar shock that is hurting corporate earnings.
There is no similar shock that’s creating a sudden stop in consumption for So a sudden stop in Capex spending for firms so broadly speaking in particular with the Fed now cutting rates, the tail wind from a i the tail wind also very broadly speaking, of course, also from the energy sensation.
Also, very broadly speaking, the tail wins from Chips Act, the Place Reduction Act, the Infrastructure Act.
We still have fairly strong support for US economic growth, and that should, to your question Julie also imply that corporate earnings are going to also look well during this earnings season.
