Third-quarter earnings season officially gets underway this week amid a slew of macroeconomic pressures — inflation chief among them — that have weighed on stocks and forced some companies to pre-announce their results. The Club holdings are not immune from the economic slowdown and market volatility, including Advanced Micro Devices (AMD), which last week pre-announced weaker-than-expected third quarter revenue on the back of lower PC demand. This week, investors and analysts are closely watching a spate of U.S. banks set to report on Friday. Bank of America on Wednesday said macroeconomic pressures will weigh on U.S. banks’ “fundamental growth outlook.” Investors should expect slower loan growth, rising credit costs and a peak in net-interest margins, BofA analysts wrote in a research note. The analysts called out Club holdings Wells Fargo (WFC) and Morgan Stanley (MS) as the “best positioned” and “most favored” names, respectively, to weather some of the headwinds. In looking back at the three months ended Sept. 30, the Club has highlighted four major themes to watch for as our holdings report results. Inflation Health of the consumer The strong dollar Commodity volatility Inflation Inflation remains top of mind for investors, as rising prices continue to weigh on demand for many goods and services. Companies with pricing power, or the ability to raise the selling prices of their products and services while maintaining demand, have a better chance at battling inflation. Club holding Procter & Gamble (PG) has proved particularly apt at this. P & G’s ability to pass on incremental price increases to customers has helped offset its inflation burden. Its quality products, including household-name brands like Tide laundry detergent, Bounty paper towels and Crest toothpaste, allow it to sell at higher price points. When P & G reports fiscal first-quarter earnings on Oct. 19, analysts expect total revenue to come in at $20.39 billion, up 0.3% from the same period a year prior, according to Refinitiv. Earnings-per-share are expected to fall by more than 3%, to $1.56 a share. By looking at a company’s total sales, investors can see how much the business has benefitted from its pricing power. In its fiscal fourth quarter , which was reported back in July, P & G’s sales climbed 3% year-on-year, to $19.5 billion, supported by an 8% hike in prices. The company has also been offering multiple pricing tiers for customers seeking more affordable options. But inflation is a double-edged sword: While it can benefit sales, profit margins can compress. We are optimistic that P & G’s business can weather inflationary pressures because we see its pricing strategy as recession-resistant. But Wall Street reviews have been mixed. In a note to investors this week, Goldman Sachs downgraded P & G from buy to neutral, saying a reversal in market share will be an “overhang” for the stock, as competitors benefit from supply chain improvement and customers trade down to cheaper household alternatives. On the other hand, Bank of America analysts highlighted P & G’s scale, innovation, and portfolio strength as “key advantages.” A September BofA survey found 34% of respondents are more likely to stock up on cleaning products in the coming months, versus 29% from May’s survey. For 69% of respondents, product quality was more important than price. Health of the consumer Companies like Club holdings Apple (AAPL) and Walt Disney (DIS) are helpful readthroughs into consumer health, as sales of their goods and services are widely impacted by discretionary budgets. When Apple reports fiscal fourth-quarter results on Oct. 27 we’ll be looking closely at iPhone sales because that segment continues to be a strong source of revenue for the tech giant. Higher year-on-year iPhone purchases would indicate that consumers have the bandwidth to shell out cash for pricier electronic devices. Analysts expect Apple’s earnings-per-share to come in at $1.26, up 1.9% year-on-year, while total revenue should climb by 6.5%, to $88.74 billion, according to Refinitiv. In an encouraging research note from UBS last week, analysts said iPhone demand is holding up. By reviewing iPhone delivery wait time data, UBS analysts gauged consumer demand for the latest iPhone series. Apple’s iPhone 14 Pro Max, the higher priced new iPhone model, is experiencing elevated wait times of 35 days, or 1 to 2 days higher compared to last year. Typically, longer delivery times suggest consumer demand is robust. Disney, meanwhile, is set to report on Nov. 8, and when it does we’ll be tracking theme park performance and customer net adds on its streaming offerings to better understand consumer behaviors. The company’s fiscal fourth-quarter results should reveal whether people are willing to pay for multiple streaming services and if they’re still traveling to Disney’s theme parks — two growth segments for the entertainment giant. Analysts expect Disney’s earnings-per-share to come in at 60 cents, up 61.9% year-on-year, while total revenue should climb by 15.3%, to $21.36 billion, according to Refinitiv. Bank of America analysts said “massive” pent-up demand for theme parks was one of Disney’s advantages in its fiscal fourth. They also noted price increases for Disney+ and Hulu, the rollout of the ad-supported Disney+ subscription and new content releases as several reasons why the company is well-positioned to handle a slower economy. The strong dollar The Dollar Index , which is a measure of the U.S. currency’s strength relative to a basket of other major currencies, is up 17.5% year-to-date at a 40-year high. A strong dollar makes U.S. products and services more expensive abroad, which could alienate international customers. Multinational companies like Club holdings Meta Platforms (META) and Alphabet (GOOGL) that do a lot of business overseas have felt the pain of the surging dollar, a trend likely to continue. Goldman Sachs analysts have anticipated “downside risks” to Meta’s third-quarter total advertising revenue due to continued foreign exchange headwinds. Meta has already forecasted third quarter total revenue in the range of $26 billion to $28.5 billion, reflecting weak advertising demand. The estimate assumes a 6% foreign currency headwind to year-over-year growth and would be in line with Refinitiv’s estimate of $27.53 billion in sales for the quarter, a 5.1% increase from last year. Meta’s earnings-per-share are expected to fall by 40.5%, to $1.91 a share. Wall Street expects Club holding Alphabet (GOOGL)’s third quarter results to also be impacted by weak advertising, a core part of the Google parent’s total revenue. Analysts at Goldman Sachs expect Alphabet’s third-quarter advertising revenue to grow by 5% year-over-year, down from a prior estimate of 8% growth, a result of “persistent” foreign exchange headwinds. Total revenue should come in at $70.91 billion, up 8.9% from the same period a year prior, according to Refinitiv, while earnings-per-share are expected to slide by 9.1%, to $1.27 a share. A potential offset to their slowing ad businesses is Meta’s and Alphabet’s cost cutting measures . Both companies are managing their expenses either through staff reductions or corporate restructuring, which could help relieve pressure from declining ad revenues. Both stocks have underperformed the S & P 500 this year. Meta has fallen 60% and Alphabet 32%, while the S & P is down 24%. Commodity volatility Higher commodity costs mean higher input costs for companies, which can ultimately eat into profitability. And oil market volatility has been sending investors on a rollercoaster this year. West Texas Intermediate crude — the U.S. oil benchmark — climbed above $120 a barrel in the wake of Russia’s invasion of Ukraine earlier this year, before dropping amid deepening concerns over the health of the global economy. WTI plunged by more than 26% in the third quarter, closing September out at $79.49 a barrel. Prices have since risen more than 10% on the back of a decision by the Organization of Petroleum Exporting Countries and its partner producers, led by Russia, to cut crude output Despite oil’s recent run, it’s still off its highs from the first half of the year. And that’s a tailwind for Club holding Costco (COST), which has been paying up for fuel prices, a big part of distribution expenses. The wholesale retailer got some relief from lower transportation and freight costs in its fiscal fourth quarter, ended Aug 28. During the company’s earnings call with analysts last month, Costco executives said commodity inflation is falling in gasoline, steel, beef and plastic compared to last year. Given the uptick in oil prices, we’re not sure how long this trend will last. But we’ll be looking to see more improvement in commodity costs when Costco reports fiscal first quarter results on Dec. 8. Analysts forecast earnings-per-share to rise by 4% year-on-year, to $3.10 a share, while revenue should come in at $54.72 billion, up 8.7%, according to Refinitiv. (Jim Cramer’s Charitable Trust is long AMD, STZ, PG, AAPL, DIS, MS, WFC, META, GOOGL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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Third-quarter earnings season officially gets underway this week amid a slew of macroeconomic pressures — inflation chief among them — that have weighed on stocks and forced some companies to pre-announce their results.
