The key to this earnings season rests in part on the consumer. Over the past two years, the U.S.
economy has held up largely thanks to a strong consumer that has continued to spend even with the rise in inflation and interest rates — though, of course, the impact has hardly been equal. Pressures faced by lower-income consumers have been smoothed over by robust spending from the middle- and higher-income cohort. But recently, there have been signs of spreading weakness.
With savings dwindling and the labor market softening, more companies are reporting changes in spending habits. Just this week, for example, PepsiCo topped expectations for its adjusted earnings per share in the second quarter, but narrowed its full-year revenue outlook because of falling U.S.
demand. The beverage and snacks giant singled out a shift in shopper behavior across all income levels. For investors, that puts the consumer front and center this earnings season.
Wall Street is trying to divine the future earnings growth potential of companies as traders navigate what many expect will be a choppy second half of 2024. "We need the consumer to continue to participate in aggregate," Bill Merz, head of capital market research at U.S.
Bank Asset Management Group, said recently, adding, "that picture needs to continue, needs to remain constructive, so that that 70% of GDP, which is consumer spending, continues to flow through and propel a stable economic environment." 'A shift in priorities' Even with crack.
