Growing anxiety over Biden’s economic outlook sparks new market rout

That anxiety is reflected in stock market turbulence, with the Dow Jones Industrial Average falling more than 800 points on Tuesday and the Standard & Poor’s 500 index falling nearly 3 percent. The Dow fell for four straight weeks and the S&P 500 fell for three straight weeks.

“Senior management is just as unaware of how things are going to turn out as we are,” said Jack Eblin, founding partner at investment firm Cresset Asset Management.

Some of the nation’s top leaders do not deny this.

“Look, no one knows,” JPMorgan Chase CEO Jamie Dimon said on the bank’s recent teleconference, referring to the interest rate trajectory, perhaps the biggest unknown looming over the economy. “And obviously everyone makes their own prediction.”

Dimon has at times sounded optimistic, like other corporate titans, reflecting the best option – that the Democrats are counting on – that could materialize. “The consumer has money. They pay off credit card debt,” he said. “Trust is low, but the fact that they have money means they are spending their money.”

But some of that money is drying up as the influence of federal stimulus funds fades. It already appears in slowdown in retail saleswhich flourished with millions of Americans returning to work.

The CEO of the Fortune 100 company, which just made a solid profit, said the economy is mostly strong now, but he’s unsure about the rest of the year.

“There is still a lot of money in the system and there is real upward pressure on wages,” the CEO said. “But inflation is very real, and the Fed is already very late. We will be dealing with an economy that is not so stable. And you have many people dealing with inflation now who have never had to deal with it before in their lives. It worries.”

So can Fed policymakers, who are expected to raise interest rates at their meeting next week, deliver on their promise to slow inflation without devastating the economy and slowing down hiring?

“Who knows?” the CEO said irritably.

On Monday, game maker Activision Blizzard, which has prospered as millions of people have been quarantined inside, reported $1.5 billion in net game orders – up from $2 billion at the same time last year. Sometime in early 2021, the stock traded above $100. Now they cost about 77 dollars.

Corporate America’s concern for the future is also reflected in survey data showing that consumers are losing confidence in the economy and in the ability of President Joe Biden and the Democrats to manage the country’s finances, especially with inflation now at its highest level in four decades.

This hesitancy also suggests that investment could fall further in the second quarter and beyond, slowing growth, limiting further job growth and further complicating the current party’s job.

The most important thing in the minds of leaders? The impact of higher inflation and the ongoing disruption of their ability to supply their products.

Kirk Krews, chief financial officer of solar company NextEra Energy, spoke on April 21 in a profit and loss account about “inflationary pressures and uncertainty in the solar energy supply chain.” He expressed frustration that the price spikes are hurting his business because his own products—solar array systems—are designed to partly offset price spikes like those of oil, gas, and other conventional energy sources.

Reporting season is just getting started, with about 27% of S&P 500 companies reporting quarterly, according to data from FactSet. Of those who did, 80 percent reported a positive “surprise” in earnings per share. (The surprise is a result that is higher or lower than what Wall Street analysts expected).

However, according to FactSet, earnings growth of 7.2% for the quarter for S&P 500 companies will be the lowest since the fourth quarter of 2020.

To date, 15 S&P 500 companies have posted second-quarter guidance (eight negative versus seven positive). The number of positive earnings forecasts could certainly rise as the remaining 73 percent of companies report doing so, but the trend is not encouraging.

National Business Economics Association widely viewed survey on business conditions, released April 25, “reflects the smallest proportion of panellists reporting earnings growth since October 2020.” The NABE survey isn’t all bad news, with most companies reporting increased sales. But expectations for higher earnings in the second quarter are dwindling.

Some companies fall short of expectations but still warn about the economy.

On April 20, Tesla said it easily beat its revenue and net income guidance, posting the company’s best results in years. But Tesla and CEO Elon Musk have also spoken about their concerns about the rest of the year.

“Our own factories have been operating at less than full capacity for several quarters as the supply chain has become a major constraint that is likely to remain until the end of 2022,” the company said in a statement along with its earnings report.

While overall US earnings data look good so far, much of the earnings growth comes from giant energy companies capitalizing on sky-high prices.

And there were huge misses that rocked the market.

Netflix shares plummeted 30 percent at last week’s open after the video streaming service reported a net loss of 200,000 subscribers when a profit of 2.5 million was forecast. This has led analysts to wonder if other companies that have skyrocketed during Covid-19 may lose some height once the pandemic subsides and inflation slashes monthly budgets.

The big tech companies are gearing up for the results this week: Microsoft and Alphabet (Google’s parent) on Tuesday, Meta Platforms (Facebook’s parent) on Wednesday, and Apple and Amazon on Thursday.

But the commentary from a group of senior executives from technology to banking and construction companies shows concern about the rest of the year.

“While U.S. unemployment is low and wages are rising, inflation is at its highest in decades,” Goldman Sachs CEO David Solomon said April 14 in the company’s earnings report. “We are seeing new pressures on the supply chain and commodity prices, and US households are facing rising gas prices as well as higher food and housing costs. We are also seeing increased risk of stagflation and mixed signals of consumer confidence.”

A consumer no longer enjoying massively increased federal benefits may not be able to keep the situation going any longer.

“If inflation continues to rise in this manner and wages do not rise as quickly, then something will go wrong,” said Ross Mayfield, an investment strategy analyst at wealth management firm Baird. “The consumer will not survive this.”