S&P 500’s Bad Earnings May Be Exactly What The Fed Wants

S&P 500’s Bad Earnings May Be Exactly What The Fed Wants

Alphabet recently told investors that demand for advertising was beginning to slow, and in the wake of the announcement, the company lost $70 billion and the Nasdaq 100 dropped 2.3%. But one entity may not see that as bad news, and that’s the Federal Reserve, which is working overtime to stop prices from spiraling, according to an article in Bloomberg.

Bad corporate news could be a necessary evil as an indication that demand is cooling, which could eventually lead to the economy stabilizing itself. And it could be a sign that the central bank’s rate hikes are doing what they were meant to. While investors have been willing to take it on the chin as the price for reducing inflation, they may not be as quick to go down when the companies they are holding report bad earnings, with the average blow being more than 4% this earnings season, Bloomberg reports. Almost a quarter of companies that have reported earnings have been off their marks, even with the serious negative sentiment that was factored in, with the expected gain only 2.5% as of late October. Microsoft posted the worst sale growth numbers in 5 years, Amazon is predicting weaker sales for the holidays, and Texas Instruments Inc’s share price dropped after its forecast didn’t meet up to analyst expectations.

Still, all these negatives could add up to one big positive for the economy as a whole, the article contends, because it means the Fed’s actions have at last started to cool the overheated economy. “It maybe be unpleasant, but the reality is some might consider it a necessary evil,” John Stoltzfus, chief investment strategist at Oppenheimer & Co, told Bloomberg.


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