Wall Street Is Down on Corporate America

Wall Street braces for a weak earnings season

Stocks may have eked out gains so far in the new year, but don’t be fooled. With corporate earnings season kicking off this week, Wall Street is pricing in a rough quarter ahead — including for itself, with Goldman Sachs reportedly planning its biggest ever round of layoffs.

“Downgrades will be a key driver of the first quarter and especially this earnings season,” Joachim Klement, a market analyst at Liberum Capital in London, told DealBook. A slowing economy, stubbornly high inflation and the Fed’s continued policy of raising interest rates will probably mean that profits at S&P 500 companies, as a whole, will fall by 10 percent this year, Liberum predicts. “I expect a lot of downward guidance for 2023 from all kinds of companies as we head towards recession,” he added.

Wall Street analysts have already begun trimming their earnings forecasts. According to FactSet, analysts last quarter cut their full-year 2023 earnings-per-share forecasts by 4.4 percent, to $230.51. That represents the biggest downgrade since 2014.

Energy and financial companies may be hit the most, according to Mr. Klement, with the finance sector likely to see earnings per share fall 12 percent year-on-year. On Friday, investors will be closely watching for this when a parade of banking giants, including JPMorgan Chase, Wells Fargo and Bank of America, report fourth-quarter results.

The banks will provide insight into the health of companies and consumers — and the labor market, too. Slowdowns in deal-making, I.P.O.s, and corporate and mortgage lending are eating into banks’ bottom lines. According to news reports, Goldman will announce 3,200 job cuts this week, mainly in its trading and banking units.

As The Times reported last month, bonuses are on the block, too. Payouts at Wall Street’s largest banks are expected to drop as much as half from last year.

There are glimmers of hope after this quarter. If the Fed begins to ease up on interest-rate increases, leading to falling bond yields, stocks could rebound in the second half of the year. Equity prices are historically 10 times more sensitive to bond yields than they are to earnings, Mr. Klement said.

If that holds true, he said, “there’s a possibility we see quite a rally — if not the end of the bear market in 2023.”

HERE’S WHAT’S HAPPENING

Brazilian authorities reclaim capital from supporters of Jair Bolsonaro. In scenes reminiscent of the Jan. 6 siege of the U.S. Capitol, thousands stormed government buildings in Brasília, falsely claiming the country’s Oct. 30 presidential election was stolen. Some 300 people have been arrested; Bolsonaro, who is believed to be staying in Florida, criticized the protests but rejected any responsibility for the riot.

Seattle’s public school district sues social networks over youth mental health. The lawsuit accuses Facebook, Instagram, Snapchat, TikTok and YouTube of harming children and teens with their products, including by exacerbating anxiety, cyberbullying and depression. The district is asking a court for damages and to order the companies to cover the costs of dealing with students’ mental health issues.

Elon Musk seeks to move Tesla stock-manipulation lawsuit proceedings to Texas from California. Lawyers for the billionaire argued in a court filing that his takeover of Twitter had created extensive “local negativity” that would taint the pool of potential jurors. In other Musk news, Twitter has reportedly made more cuts to its trust and safety team.

The British government meets with unions to avert more strikes. Prime Minister Rishi Sunak hopes to reach an agreement with education, health and railway unions to avoid more work stoppages that have weighed heavily on the British economy. It represents a softening of Sunak’s hard-line tactics against the strikes.

Deere agrees to let farmers repair their own equipment. The farming tech giant said on Sunday that its machines can now be repaired by individuals or independent shops, after being accused of making it too costly for farmers to make fixes on their own. It’s the latest example of the growing popularity of the right to repair movement, which has also affected the likes of Apple.

House chaos could hit businesses next

Representative Kevin McCarthy, Republican of California, survived a 15-round battle royale to secure the House speaker’s gavel — but now comes the hard part. Economists and Wall Street are already worried about a potential debt ceiling fight this August.

The big question: Does Mr. McCarthy have the power to keep the more hard-line elements of his party from sabotaging plans to fund the government and keeping the country from defaulting on the trillions it owes?

Raising the debt ceiling is “nonnegotiable,” asserts the G.O.P.’s ultraconservative wing. To win over holdouts in the House Freedom Caucus, Mr. McCarthy struck a series of concessions that include opening debate on spending bills and vows not to raise the debt limit without major cuts to the likes of Social Security and Medicare.

The negotiating — which involved literal jostling at times — could be a preview of the chaos to come. And corporate America could see this up close.

Some Republicans want to take aim at the environmental, social and governance investment trend. One high-powered member is the House Financial Services Committee chairman, Patrick McHenry of North Carolina, who has publicly opposed a new S.E.C. proposal on environmental disclosure rules.

The Freedom Caucus wants to follow the lead of some red states. Texas is among Republican-led states trying to decouple E.S.G. requirements from public pensions, and even demanding divestment from asset managers like BlackRock. Representative Chip Roy of Texas last year sponsored the No ESG at TSP Act, which would affect the pensions of federal employees and the military. (Mr. Roy emerged as a key player in the speakership negotiations, and could become a bigger voice in the E.S.G. debate in Washington.)

“The political environment is chaotic,” said Chong Park, a partner and antitrust specialist at the law firm Ropes & Gray. Corporate clients are likely to keep quiet on climate goals right now — a trend known as “green hushing” — unless environmentalism is essential to their branding.

“People are just waiting for the dust to settle. That’s where green hushing is coming in,” Mr. Chong told DealBook. “They’re just exercising caution.”

Jack Ma’s retreat shows Beijing’s still in charge

Jack Ma was China’s most famous businessman until Xi Jinping decided he shouldn’t be. Ma will cede control of the fintech company Ant Group, it was disclosed this weekend, and the markets seem to be OK with that. The Hong Kong-listed shares in his Alibaba and other related companies rose sharply as investors bet that this will be the final act of Mr. Ma’s defenestration.

Ant’s pulled I.P.O. kicked off a broader regulatory crackdown. The sister company of Alibaba is the dominant financial portal for more than 1 billion users in China and was set to launch a record-breaking $37 billion initial public offering in November 2020. But officials scuppered it at the last minute after Mr. Ma publicly criticized Chinese regulators and state-owned banks.

Beijing wants business to know who’s in charge. The move was seen as an attempt by the Communist Party to assert its control over the economy and the country’s tycoons, stoking wider concerns about the role of private enterprise and wiping billions off the share prices of Big Tech. The stock market capitalization of Alibaba has fallen by about two-thirds since its 2020 peak, erasing more than $500 billion in value.

Investors hope officials are changing tack. The authorities have eased some restrictions on the sector, including resuming approval for imported video games. The share price of Tencent, China’s biggest internet company, is up more than 10 percent since the start of the year and more than 50 percent over the past three months.

What’s next for Ant and Mr. Ma? Hong Kong listing rules mean that Ant bosses cannot resume an I.P.O. for at least another 12 months. Meanwhile, Mr. Ma has largely remained out of sight for the past two years. He has reportedly shown up in Japan and Thailand recently, but is going nowhere near the types of high-profile public events at which he used to be a fixture. And ultimately, that is probably the best indicator of who remains in charge.

“We’re making a bet that this book has got legs. It’s not going to be a flash in the pan.”

— James Daunt, who heads Barnes & Noble and the British bookstore chain Waterstones, on the intense public attention around Prince Harry’s upcoming tell-all memoir, “Spare.”

The week ahead

Beyond earnings, the U.S. will get some of its last inflation data before the Fed announces a rate decision at the conclusion of next meeting, which is scheduled from Jan. 31 to Feb. 1.

Tuesday: Bed Bath & Beyond, which is weighing options including bankruptcy after a disappointing sales season, reports earnings. Elsewhere: The grocery chain Albertsons reports.

Wednesday: The Golden Globes return to TV after being off the air last year. The Hollywood awards show faces a big question: Does it still matter?

Thursday: U.S. Consumer Price Index data is expected to show that prices rose 5.7 percent from a year earlier. China’s inflation data is also scheduled to be released.

Friday: Wall Street giants report earnings, as does Delta Air Lines. Elsewhere: The University of Michigan releases its latest preliminary reading of consumer sentiment.

THE SPEED READ

Deals

• Prime Minister Rishi Sunak has resumed efforts to give London a key role in the coming initial public offering of Arm, the British chip designer. (FT)

• A U.S. trustee in FTX’s bankruptcy case objected to the crypto exchange’s plans to sell some assets, pending a full investigation into the company’s collapse. (Reuters)

• AstraZeneca agreed to buy CinCor Pharma for up to $1.8 billion to strengthen its portfolio of heart and kidney drugs. (Reuters)

Policy

• Federal prosecutors have reportedly subpoenaed U.S. hedge funds over their dealings with Binance. (WaPo)

• A court rejected Blackstone’s request to lift rent limits for thousands of apartments at Stuyvesant Town-Peter Cooper Village, Manhattan’s largest apartment complex. (NYT)

Best of the rest

• “As Asian Societies Age, ‘Retirement’ Just Means More Work” (NYT)

• Inside the latest succession issues confronting Rupert Murdoch’s media dynasty. (FT)

• Can UPS avert a potentially catastrophic strike by the Teamsters this summer? (New Yorker)

• How Facebook tried and failed to spearhead an ambitious bridge project in its backyard. (NYT)

• The most popular shows on streaming aren’t water-cooler hits like “The White Lotus” — they’re old-fashioned crime dramas. (NYT)

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