Wall St. Profits Surge Despite Questions About the Economy

What corporate earnings say about the economy

Earnings season is underway, with Wall Street giants flying out of the gate this on Friday. JPMorgan Chase, Wells Fargo and BlackRock have each reported results that soundly beat analysts estimates, lifting shares in premarket trading.

Quarterly financial reports in general should deliver a timely checkup on the economy. Corporate profit has held up well despite high inflation and high interest rates. But a number of companies have warned that customers are pulling back, signaling ongoing economic challenges.

The American consumer’s recovery “has been slower than we had anticipated,” Jamie Caulfield, PepsiCo’s C.F.O., told analysts this week. The most recent Times/Siena College poll bore this out: Three-quarters of respondents said the economy was in fair or poor condition, and nearly the same percentage said they sometimes forgo grocery purchases because of costs.

The major presidential candidates have sought to seize on this. Donald Trump has criticized the Biden administration as being responsible for an economic malaise. Meanwhile, Vice President Kamala Harris has made fighting corporate price-gouging a priority.

Analysts forecast a mixed earnings picture. Profit for S&P 500 companies is expected to grow for a fifth straight quarter, by 4.2 percent, according to FactSet.

But the financial sector will probably report that earnings per share fell by 0.4 percent during the same period. Despite Friday’s results, banks in general are getting hit by lower interest income, a consequence of Fed rate cuts, and higher loan-loss provisions, according to Gerard Cassidy, a banking analyst at RBC Capital Markets. There’s a potential bright spot, he added: an expected surge in investment banking revenue.

Inflation remains a wild card. Consumer Price Index data released on Thursday showed that price increases are slowing, but economists had expected more relief for consumers. The figures — which showed an uptick last month in grocery prices, auto insurance and airfares — have revived debate among Fed officials about how quickly they should cut rates, and by how much.

Dovish policy members like John Williams, the New York Fed president, suggested that another cut would come at next month’s meeting. But Raphael Bostic, the Atlanta Fed president, told The Wall Street Journal, “I am totally comfortable with skipping a meeting if the data suggests that’s appropriate.”

One complicating factor: a spike in jobless claims, which could be read either as a harbinger of economic weakness or as an aberration brought about by hurricanes and labor strikes.

Expect tough questions for executives about politics. Analysts will probably ask management teams how they’re viewing the potential effects of a Harris or Trump administration.

HERE’S WHAT’S HAPPENING

Officials tally Hurricane Milton’s toll. The superstorm has left about 2.6 million people without power, killed at least a dozen people and caused up to an estimated $50 billion in insured damage. Coupled with Hurricane Helene, total insured losses in Florida this year have topped $100 billion. That said, the state appears to have been spared even worse destruction, despite a flood of online misinformation that threatened to disrupt emergency response efforts.

Donald Trump promises another tax cut. With the presidential race extremely tight, the Republican candidate floated the idea of making car-loan interest fully tax deductible, another proposed break aimed at key voting blocs. Meanwhile, Vice President Kamala Harris faced sometimes emotional questions from voters about immigration, health care and the economy at a town hall hosted by Univision.

AMD fires a shot in the artificial intelligence chip wars. Its Instinct MI325X, set to start production before year-end, is intended to compete with Nvidia’s latest high-end processors for artificial intelligence applications. If AMD’s chip performs well enough, it could put pricing pressure on Nvidia, whose semiconductors enjoy huge margins in part because of a lack of competition.

“I tend to be a little optimistic”

Tesla shares are down in premarket trading on Friday following Elon Musk’s glitzy unveiling of prototypes of the company’s first “robotaxis,” a breakthrough he has been promising for years.

Analysts and experts are skeptical that the so-called cybercabs will hit the road soon. That, and new details about Musk’s campaigning to re-elect Donald Trump, could renew investor worries that the Tesla boss is overstretched and distracted.

Musk sees autonomous vehicles as Tesla’s future growth engine. The car will be available by 2027 and cost less than $30,000, he said at the event last night in Hollywood. The vehicle doesn’t have a steering wheel or pedals, and Musk said it would transport passengers as part of a ride-hailing service Tesla plans to offer. Tesla’s Model 3 sedan and Model Y SUVs will offer self-driving rides much sooner in Texas and California, Musk promised.

The project is big for Tesla. Shares have risen by almost 50 percent since April 5, when Musk revealed on X the company’s pivot to autonomous vehicles, robotics and artificial intelligence.

But the presentation was short on details. Shares are down more than 6 percent in premarket trading as investors want to know how quickly robotaxis could boost the bottom line. Musk also revealed little about the tech behind his cars — a big question mark, with Alphabet’s Waymo and General Motor’s Cruise seen as being far more advanced.

“His vision is lovely, but somebody has to actualize it,” Ross Gerber, a Tesla shareholder and frequent critic of Musk’s management style, told Reuters.

Musk is focused on Trump. The entrepreneur is obsessed about getting the Republican re-elected, The Times reports, and is applying his business instincts to politics.

Musk talks to Trump several times a week and is spending more time in Pennsylvania. Musk is personally steering the super PAC that he funded with tens of millions of dollars and has established a base of operation in the pivotal battleground state. “I’m not sure there is a precedent in modern history to how Musk has inserted himself into the presidential race,” Benjamin Soskis, a historian of the wealthy, told The Times.

Musk has defied his critics many times. Tesla’s share price has fallen over the past year, mostly missing out on a bull market rally. Some analysts see the robotaxi as a potential game-changer. That said, even Musk acknowledged, “I tend to be a little optimistic.”

The fight over Pfizer alumni’s U-turn

Pfizer’s clash with the activist investor Starboard Value appears to have taken an acrimonious turn.

Starboard on Thursday accused the drug maker of threatening two former executives — Ian Read, Pfizer’s prior C.E.O., and Frank D’Amelio, its previous C.F.O. — if they didn’t back the company’s current leader, Albert Bourla. It was a shot across the bow, and suggests that the hedge fund, which owns a $1 billion stake in Pfizer, is ready to fight.

Starboard’s assertion came a day after Read and D’Amelio said they supported Bourla. The former Pfizer executives made their statements on Wednesday following reports that they had asked members of the company’s board to give the hedge fund a fair shake.

The activist investor said that Read and D’Amelio had “expressed concerns about the trajectory” of Pfizer’s business and “offered to be of assistance.” That, Starboard said, was the sole extent of its engagement with the men.

But Starboard accused Pfizer of strong-arming Read and D’Amelio. Executives, or their advisers, appeared to have threatened to sue the two, claw back some compensation or cancel unvested stock units unless they distanced themselves from the activist campaign, the hedge fund said.

“We believe this behavior is highly inappropriate, flagrantly unethical, and a significant breach of fiduciary obligations,” Starboard added, urging the board to investigate the purported move.

The fight still shows that Starboard’s campaign isn’t off to a great start. The Financial Times reports that the hedge fund’s effort to surprise Pfizer was spoiled by errant emails sent by D’Amelio to Bourla and other directors — with a Starboard executive copied on the messages. And losing the support of Read, who had named Bourla as his successor, and D’Amelio, who worked under Bourla, deprives Starboard of significant leverage in negotiations.

That’s on top of analysts and investors questioning how successful an activist campaign against Pfizer would be, given that the drug maker has limited strategic options to bolster its stock price.

What’s next: Bourla and Pfizer’s lead independent director, the Adobe C.E.O. Shantanu Narayen and potentially other executives are set to meet with Starboard on Wednesday.

Google’s week of highs and lows

It was a week of good and bad news for Google. Two of its top artificial intelligence researchers and a former one were awarded Nobel Prizes. But sandwiched in between those announcements, the Justice Department said it may seek to break up the company to end its monopoly in online search.

Cade Metz, who covers A.I. for The Times, talked with DealBook about Google, the race to dominate the technology and the regulatory squeeze.

A lot of headlines say Google is behind on A.I. Is that true?

Those headlines are silly. Google has spent years building pretty much the same technology as OpenAI, Meta, Microsoft and other prominent A.I. companies. OpenAI’s ChatGPT chatbot commands a much bigger share of the market than its many competitors, including Google’s Gemini. But that’s because OpenAI was, as they say in Silicon Valley, “the first mover.”

The market is still very young. And Google controls many of the key resources needed to succeed in the long run, namely lots of money, vast amounts of computing power and a stable of very talented A.I. researchers.

Given the Nobel Prize-winning research coming from Google, is there an argument that it should actually be further ahead in commercializing A.I.?

Yes. ChatGPT is based on an A.I. technology called a neural network, which Google has been nurturing for more than a decade. Google started building technology a lot like ChatGPT years ago, but it was reluctant to commercialize it because neural networks, which learn from massive amounts of data culled from across the internet, can generate harmful material.

A chatbot that spewed false, sexist or racist information was not a good look for a big public company. OpenAI was willing to push ChatGPT onto the internet, despite those flaws.

Do any of the proposed remedies in the Justice Department’s case potentially threaten Google’s ability to be competitive in A.I.?

In a court filing on Tuesday, the Justice Department said that any efforts to contain Google’s search monopoly should consider its ability to “leverage its monopoly power to feed artificial intelligence features.”

That is pretty clear.

THE SPEED READ

Deals

• Sanofi is said to be near a deal to sell its consumer health unit to the private equity firm Clayton Dubilier & Rice for about $16.4 billion. (Bloomberg)

• The owners of the Minnesota Twins, the Pohlad family, have hired the investment bank Allen & Company to explore a sale of the M.L.B. team. (Sportico)

Elections, politics and policy

• The chair of the F.C.C., Jessica Rosenworcel, criticized Donald Trump’s call for CBS to lose its broadcasting rights over how it edited its interview with Vice President Kamala Harris. (WaPo)

• A close look at Scott Bessent, the former Soros executive who has become a top economic adviser to Donald Trump. (WSJ)

Best of the rest

• Nihon Hidankyo, a grass-roots movement of atomic bomb survivors from Hiroshima and Nagasaki, was awarded the Nobel Peace Prize for efforts to eliminate nuclear weapons. (NYT)

• “For MLB Players Not in Playoffs, It’s Time to Take Loans” (Sportico)

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