Strong earnings and hopes for less aggressive interest rate hikes have spurred a Wall Street rally, but top companies are playing it safe, according to NPR.
All but about 50 of the S&P 500 companies reported earnings in the second quarter, with about 75% of them doing better than they anticipated, according to the S&P Dow Jones Indices. Despite the promising performance, economic uncertainty has some executives exercising caution. The question is whether their moves indicate trouble ahead.
First, they are cutting back on advertising. Traditional media outlets, including The New York Times and Gannett, saw a decline in ad revenues. Also, social media companies experienced a slowdown in ad sales. For the first time ever, Meta, the parent company of Facebook, reported declining revenue, and social media company Snap has seen its share price drop more than 75% so far in 2022.
"There was a significant slowdown in TV advertising spend due to the macroeconomic environment," a July Roku shareholder letter said. Roku makes streaming media players.
Beyond advertising, companies are cutting back on capital expenditures and hiring. Bed Bath & Beyond said it would shave capital spending by 25%, NPR reported. And tech companies, in particular, have stalled hiring or announced job cuts, slashing almost 70,000 jobs already in 2022, according to Layoffs.fyi, which tracks firings in the tech sector.
Automotive companies have shown signs of caution, too. GM is "reducing some discretionary spending and limiting hiring to critical needs and positions that support growth," Chief Executive Officer Mary Barra told NPR, adding that the company has "modeled several downturn scenarios, and we are prepared to take more deliberate action when and if necessary."
A third factor causing concern for companies is inflation’s effect on consumer shopping habits. People have continued to spend, though their purchases look different. With the rise in food prices, customers are spending less on “general merchandise,” Walmart told NPR, creating a glut on shelves and price drops to get rid of inventory.
Also, supply chain issues have continued to confuse the flow of goods. "Across the economy, supply chain issues have both limited the ability to meet demand in some areas and driven inventory well above normal levels in others," Intel Chief Executive Officer Pat Gelsinger told NPR.