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AvaTrade comments on earnings season

 

As the earnings season for Q2 2023 begins, we ask Kate Leaman, Chief Market Analyst, AvaTrade (www.avatrade.com), to share her thoughts on which sectors are emerging as winners and losers during the current earnings season, as well as which earnings reports she is intrigued to see in the coming days and weeks.

“U.S. banks experienced a boost in Q2 due to higher interest rates, leading to an upswing in major indexes.  However, concerns loom for the sector as lower consumer spending, sluggish loan growth, and increased deposit costs create uncertainty.  These results came after a challenging first quarter, marked by the failures of Silicon Valley Bank and two other lenders.  Share gains were also driven by signs of a revival in the investment banking sector, as higher rates and economic uncertainty previously impeded deals and trading.”
 
“Amidst the dynamic landscape of Q2 2023, certain sectors are emerging as winners, boasting year-over-year net profit margin growth compared to the same period in 2022.  Leading the charge is the real estate sector, surging from 35.3% to an impressive 36.9.  This is followed closely by the consumer discretionary sector, showing a substantial rise from 6.0% to 7.3%.  Not to be outshone, the communication services sector also joins the winners' circle, escalating from 10.4% to a robust 11.5%.

 

“Both Microsoft and Alphabet report an increase in the revenue during Q2 2023, as the two firms focused on artificial intelligence (AI) developments throughout this three month period, while the metal and mining giant Rio Tinto reports its lowest first-half earnings in three years off the back of China’s economic uncertainty casting a shadow over the entire sector.”
 
“However, not all sectors enjoyed such triumphs.  Seven of them have faced a year-over-year decline in their net profit margins, grappling with challenges in Q2 2023 against their impressive performances in Q2 2022.  Energy took a hit, experiencing a dip from 14.4% to 9.9%, while the materials sector followed suit, witnessing a drop from 14.5% to 10.8%.  Additionally, the healthcare sector faced headwinds, navigating a decrease from 11.0% to 7.6.”
 
“Looking ahead, there are several reports investors should be keeping an eye on over the coming days and weeks.  This includes Apple.  Despite the prevailing economic uncertainties, the technology giant remains confident that its overall sales target of approximately 85 million units will remain unaffected.  To compensate for potential challenges in the production of cheaper iPhone 15 models, Apple plans to reduce the number of base iPhone 15 orders.  Instead, the focus will be on bolstering the production of the iPhone 15 Pro.  As well as this, it’s worth monitoring Advanced Micro Devices (AMD) performance, to understand whether the deep PC slump, which saw shipments fall by 30% in Q1, has come to an end.”