Earnings have been mostly good. Just avoid the tech wreck
Is a recession coming? Look to corporate earningsReplayMore Videos ... (15 Videos)Is a recession coming? Look to corporate earnings'Dr. Doom' explains why the Fed will lose its inflation battleJobs economist: Worker shortage may keep inflation highStockX CEO: Here's how we authenticate sneakers, trading cards before saleMarkets expert: It's time to play defenseHere are 3 things you should do right now in this marketBuying or selling a home? Hear what this economist has to say about prices4 ways Twitter and Musk court battle could end, explainedBillionaire businessman explains how to invest like the bestStrategist: Here's why the Fed could still pull off a 'soft landing' Klarna CEO on 'buy now, pay later' competition from AppleStrategist explains why you should 'buy stocks when it feels terrible'Your next subscription could be to Subway. Its CEO explains how it'll workWalmart vs. Target: A tale of two retail resultsDoes Wall Street understand Netflix?New York (CNN Business)Stocks have rallied sharply in October, despite continued worries about rampant inflation globally, a strong dollar hurting multinational companies and the political and economic turmoil in the UK. A lot of the optimism has to do with the fact that investors are hoping the Federal Reserve will soon start to slow its pace of interest rate hikes.
But there's another reason. Corporate earnings have actually been, to quote "Curb Your Enthusiasm's" Larry David, pretty, pretty good. Just steer clear of the once red-hot tech sector.Google owner Alphabet (GOOGL) and Microsoft (MSFT) disappointed investors with their latest outlooks later Tuesday. Chip giant Texas Instruments (TXN) and streaming music company Spotify (SPOT) also underwhelmed Wall Street. All four stocks tumbled Wednesday. And that's a big reason why the Nasdaq was flat in late morning trading, even as the broader market held up relatively well. The Dow was up more than 300 points, or 1%, while the S&P 500 gained 0.6%. Stock picking isn't dead. But for most investors it might as well beTop techs (i.e. what used to be dubbed FAANG stocks before name and ticker changes) make up a big chunk of the weighting of the S&P 500. Investors are now waiting to hear from the likes of Facebook owner Meta Platforms, which reports earnings after the closing bell Wednesday, and Amazon (AMZN) and Apple (AAPL), which report Thursday afternoon.Read MoreWeakness in tech is dragging down profit forecasts for the broader market. According to data from FactSet senior earnings analyst John Butters provided to CNN Business Wednesday morning, analysts are now forecasting profit growth of just 0.6% in the third quarter for the S&P 500. That's down from estimates of 1.5% as recently as Friday.Wall Street is predicting that profits will drop for both the tech and communications services sectors. "I still don't love tech. There are not a lot of values there. These companies aren't growing to the sky anymore," said Brian Frank, chief investment officer of Frank Funds. More to the market than FAANGLook beyond tech though and there are many more bright spots to be found in Corporate America's report cards. Credit card giant (and Dow component) Visa (V) reported earnings and revenue that surpassed analysts' expectations, and the company also boosted its dividend. Kraft Heinz (KHC) posted solid results Wednesday morning, sending its stock higher. That good news comes on the heels of strong results from GM (GM) and Coca-Cola (KO) Tuesday morning. See how CNN covered Black Monday on Wall Street 35 years agoReplayMore Videos ...
See how CNN covered Black Monday on Wall Street 35 years ago 02:16There are many parts of the economy that are still doing fine. Along those lines, FactSet's data shows that analysts are expecting double-digit percentage growth in earnings for consumer discretionary companies, industrials and real estate firms. And energy sector profits are forecast to more than double, thanks to the surge in oil prices this year.Two other encouraging signs? Nearly three-quarters of the S&P 500 companies that have reported earnings so far have topped forecasts. (The earnings misses, naturally, get more attention on Wall Street.) What's more, demand still seems to be holding up for many companies. Revenue is expected to grow 8.6% in the quarter, according to FactSet. So the weaker earnings are more a function of higher costs as opposed to a significant slowdown in sales."Overall, earnings are doing well given the environment," said Max Wasserman, senior portfolio manager with Miramar Capital. Consumer companies hanging in thereHe pointed out that consumer companies in particular seem to have the ability to pass on price increases due to higher commodities and shipping costs. That's good news for companies like Coke, rival Pepsi (PEP), Starbucks (SBUX) and retailers such as Target (TGT) and Home Depot (HD). Miramar owns these stocks. Wasserman said he's hoping that inflation pressures might finally be close to peaking...and as pressure on expenses starts to fade, that should boost earnings.Beware of fad stocks. Truly owner, Snap and Zoom have plunged"We're not out of the woods yet, but we can see the bottom," he said. "I'm optimistic because what hurt companies on the way down should help them on the way back up."Frank, the Frank Funds CIO, also likes consumer stocks. He said that Coca-Cola Femsa (KOF), a bottler of Coke products in Mexico, Brazil and other parts of Latin America, is a cheaper stock than Coke and should benefit from some of the same trends internationally that are helping the soft drink giant in the United States. Frank also owns Philip Morris International (PM), which he said should benefit from the fact that its betting more on its heated tobacco iQOS product over traditional cigarettes. Heated tobacco doesn't burn, so it doesn't produce smoke. But as Frank notes, it's still viewed as a so-called vice or sin stock, which he said "are more recession resistant."Click Here To Get Funded!