Jim Cramer told investors to prepare for a potentially rougher third-quarter earnings season. The Mad Money host said companies may not deliver the strong numbers investors have grown used to.
The country’s biggest lenders go first. JPMorgan, Wells Fargo, Citigroup and Goldman Sachs are scheduled to report September-quarter results on October 14.
“We’re on the verge of the earnings deluge and, this time, I don’t think we’ll be getting the kind of strong numbers that we’ve become accustomed to,” Cramer stated.
Higher Rates Cloud the Q3 Earnings Season
Cramer tied his caution to rising borrowing costs and a Federal Reserve focused on bringing inflation down.
“Thanks to rising rates and [a Federal Reserve] that’s determined to bring down inflation, we’ve got a much more difficult backdrop coming up for earnings season. I’m not saying it’s impossible to make money owning stocks in this environment, but it’s certainly a lot harder than it used to be,” he said.
Cramer had already named higher rates as his biggest fear for the stock market. That concern goes back to September 16, when the Fed raised its interest rate to 4%. It was the central bank’s first hike since 2023.
Friday did bring some relief, as stocks rose on soft jobs data and falling oil prices. The Bureau of Labor Statistics said employers added 29,000 jobs in September, short of economists’ forecasts.
The unemployment rate edged up to 4.2% from 4.1% in August. Bitcoin (BTC) and gold also initially climbed after the data came out.
Analysts Remain Optimistic
Meanwhile, FactSet’s John Butters said analysts lifted S&P 500 per-share earnings estimates for Q3 by 1.4% during the quarter. Estimates typically fall during a quarter by 2.2% on average over the past 5 years.
“Heading into the start of the earnings season, analysts and companies have been more optimistic than normal in their earnings outlooks for the third quarter. As a result, estimated earnings for the S&P 500 for the third quarter are higher today compared to expectations at the start of the quarter. In addition, the index is expected to report earnings growth above 25% for the third-straight quarter,” Butters wrote.
The S&P 500 is now expected to post 29.5% year-over-year earnings growth, up from 26.7% on June 30. Of 116 companies issuing guidance, 72 issued positive outlooks and 44 negative ones.
Investors will also hear from New York Fed President John Williams on Tuesday. In Buffalo on September 29, he said the Fed did not need to rush another hike. He added that one more may suit late this year.
The weak payrolls now give Williams fresh data to address. The October 14 bank results will then begin the main test of profits under higher borrowing costs. They will also show whether analysts were right to raise their forecasts.
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