US corporates enter their FQ1’22 earnings season this week. The latest earnings showed resilient results despite recent macro headwinds. Investors' fear of possible demand destruction triggered by aggressive rate hikes and the Ukraine/Russia war has yet to materialize. However, there are still some pockets of weaknesses in the economy.
On the bright side, all major money centers reported robust consumer activities. JP Morgan's combined debit/credit spending was up 21% YoY in Q1, led by travels. Wells Fargo saw debit/credit volume up 10% YoY in the quarter. Bank of America reported that aggregate card spending was up 11% in March despite 40-year high inflation.
The travel sector has been very strong thanks to pent-up demand. Delta Airlines says March was the best cash sales month ever and expects Q2'22 revenue to recover to 95-97% of the 2019 level. Luxury goods companies did well, too. LVMH reported organic sales growth of 24% in the US, outpacing its 8% growth in Asia. Hermes’ America sales are up a staggering 44%. Leading industrial distributor Fastenal reported solid earnings, with sales up 18.6% on a constant currency base. The volume contributed 12.6% of the growth, while pricing contributed the remaining 6%. Demand was strong, and cost inflation in raw materials was successfully passed on to customers. Management acknowledged that the supply chain is still a challenge but in a much better shape than a few months ago. However, on the other hand, there are signs that some pockets of the economy are cracking as the Fed hikes rates aggressively, such as the housing market. As the mortgage rate surged passing 5% recently, the mortgage origination tumbled across large banks. For example, JP Morgan's mortgage origination dropped 41% QoQ; Wells Fargo reported a drop of 22% QoQ. In addition, CarMax reported weak earnings due to affordability issues.
“The consumer has money. They pay down credit card debt. Confidence isn't high, but the fact that they have money, they're spending their money. They have $2 trillion still in their savings and checking accounts, business are in good shape. Home prices are up. Credit is extraordinarily good.” --Jamie Dimon, JP Morgan Chase CEO
“The supply chains in markets remain tight. However, conditions have stabilized. We're getting more products on the shelf to support the needs, which makes the business less chaotic.” --Dan Florness, Fastenal CEO
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