This quarter, companies across sectors are feeling very similar trends: slowing top lines; customer decisions being pushed out; an anemic consumer; labor issues, including wage inflation, unionization, and inefficiency; and continued or emerging supply chain issues.
While overall U.S. Bank performances were largely in the black, executives refrained from declaring a definitive turnaround. Many injected a sense of caution in their macroeconomic commentaries, commensurate with our observations from our prior Commencing the Quarter Thought Leadership report. Still, increased confidence amid continued capital market strength and percolating M&A deal activity is notable.
This week, our Thought Leadership covers: Key Events this week and Q2’24 Earnings Communication Digest, based on a review of company earnings to date
For Q1’24, company performances surpassed already strong expectations, particularly on the bottom line, as executives demonstrated their prowess with productivity initiatives. As a result, the Dow hit 40,000 for the first time in history, and the S&P 500 and Nasdaq also hit record highs after encouraging inflation data this week.
As we look at the broader landscape and try to read the tea leaves on behalf of our clients this quarter, the Materials sector – a barometer for the economy – is showing signs of slow, but steady stabilization. Indeed, Materials, one of the “canary in the coal mine” sectors, has now moved to a “variable degree” of optimism, a better place than we were last quarter and the boom-and-bust nature that played out from the Covid-induced cycle. However, with many companies exposed to the consumer, progression will most likely be choppy and bounce along versus linear.
There is a noticeable change in executive tone this quarter — one of more caution — as much of the sector grapples with fluctuating and bifurcating consumer buying habits, with pronounced pullbacks this quarter in discretionary spending evident across several industries, including dining and retail. Much hinges on the consistently strong employment environment, though we continue to see a bevy of layoffs as companies manage profitability in a slowing growth environment and as pricing power has slowed at the same time labor costs are climbing.
As we noted heading into earnings season, investor optimism, including that captured in our Industrial Sentiment Survey®, is seemingly outpacing corporate reality at this time, but executive commentary suggests increasing hope and optimism around normalization and back-half acceleration. Flagging headwinds are hampering straight-line momentum and the U.S. Presidential Election is more and more cited as curtail capex confidence, especially large, long-cycle projects. Year-over-year, the tone is improved.
While overall Bank positioning paints the picture of increasing optimism, there remains a continued dosage of caution, and many executives were careful to call an outright turnaround in conditions just yet. But, when we assess tone quarter-to-quarter, it continues to inflect more positively… another sign that 2024 is starting off strong.
We hope you find our primary research timely, insightful, and actionable, beginning with today’s “Commencing the Quarter” and throughout the Q1’24 earnings season as we report on trends and share our data-driven insights.
Despite warning signs that have caused concerns in prior economic cycles, many companies at a minimum seem increasingly less worried, and in some cases, outright more confident based on recent quarterly management commentary. Capital allocation trends suggest companies are eyeing growth mode again, particularly with most forecasting a stronger back-half of the year.
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