GDP growth 'the key to watch for corporate earnings,' strategist says
PIMCO Portfolio Manager Erin Browne joins Yahoo Finance Live to discuss GDP growth amid volatility and inflation.
Video Transcript
BRIAN SOZZI: While recession risk over the next year is low, it is fragile and remains prone to exogenous shocks, points out our next guest. Erin Browne is a portfolio manager at PIMCO. Erin, always good to see you here.
Earnings season, it's days away from starting. It's just a long blob that never seems to end. Do you think the growth slowdown we are seeing here in the US from a GDP standpoint, how do you think that's going to show up in corporate earnings?
ERIN BROWNE: So I think it's going to be really the key to watch for in corporate earnings. To date actually on a year-to-date basis, we've seen upward analyst revisions meaningfully throughout 2022. And so the market really isn't yet focused on a slowdown or any translation of the volatility that we're seeing in some of the economic data, particularly the inflation data translate over into earnings expectations.
So I think that's going to be the key to watch. And really what the market's going to be focused on is margins. How are corporates being able to manage the increased inflation and cost input inflation that they're seeing coming through? And that, I think, is going to be the key differentiator for stocks.
JULIE HYMAN: And what are we hearing-- hey, Erin, it's Julie-- what are we hearing in these sort of in-between companies that are reporting in the never-ending earnings season, as Soz pointed out? Are we getting sort of any early indications here as to what margins could look like?
ERIN BROWNE: There have been a couple of pre-announcements, although there haven't been a lot, so the data is quite limited. What we're seeing, though, is it really comes down to the end market and who the corporate is really serving. Those that are more exposed to the low-end consumer that's been hit with the double whammy of the child tax credit coming away as well as other stimulus measures sort of fading away have been having a more difficult time passing through pricing and some of that cost inflation onto their consumer.
Those corporates that are still exposed to the higher end consumer are a little bit more immune to the cost inflation pressures. Or they're not immune to the cost inflation pressures, but they're able to pass that pricing on. And so I think that's what the key differentiator has been thus far. And it will be important to see if that continues to translate through as we move through the next couple of weeks of earnings.
BRIAN SOZZI: Erin, the earnings report out of Conagra this week, frozen food giant-- they make Slim Jim's-- really bothered me because they missed on earnings or was disappointing on the quarter on the bottom line in large part because of inflation. And they're seeing more inflation or just seeing inflation accelerate, and that's now factored into their outlook, disappointing quarter overall. Is that type of report the new norm of what people should be expecting over the next few weeks?