- CNBC’s Jim Cramer says rising interest rates and a tougher earnings backdrop could make the next stretch of the stock market more difficult for investors.
Investors should prepare for a more challenging earnings season as higher interest rates and persistent inflation pressure corporate results, CNBC’s Jim Cramer warned on Oct. 2.
“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 said on CNBC’s Mad Money, according to the report.
His comments came as the S&P 500 entered October after posting losses in three of the previous four weeks. The Dow Jones Industrial Average had also declined in four of the previous five weeks, while the Nasdaq remained stronger as investors continued to favor large technology and artificial intelligence stocks. 10x Wealth Report
The backdrop has become more complicated for stocks. The Federal Reserve raised its benchmark interest rate by 25 basis points in September to a 3.75%-4% range, while the 10-year Treasury yield recently climbed to its highest level since 2002.
Higher Rates Create a Tougher Earnings Backdrop
Cramer said rising rates and the Fed's effort to contain inflation could make the upcoming earnings season more difficult. The first major wave of results begins with the nation's largest banks. JPMorgan Chase & Co. (NYSE: JPM), Wells Fargo & Co. (NYSE: WFC), Citigroup Inc. (NYSE: C) and Goldman Sachs Group Inc. (NYSE: GS) are scheduled to report September-quarter results on Oct. 14.
The concern comes as Treasury yields have risen sharply. The 10-year yield reached about 5.34% on Oct. 1, while higher borrowing costs are putting additional pressure on businesses and investors.
Cramer said investors should not assume that strong earnings growth will continue at the pace seen in previous quarters. That could make individual company results and management guidance more important as the market moves through October.
Recent market action has already shown how sensitive equities are to rates. On Oct. 1, US stocks recovered after the 10-year Treasury yield retreated from roughly 5.3%, while technology shares gained support from strong results at Micron Technology Inc. (NASDAQ: MU).
The latest Fed outlook for stocks remains one of the central issues investors are watching as earnings season approaches.
Cramer Highlights Marvell, Levi Strauss and PepsiCo
Cramer identified several companies and events that could offer a clearer picture of how businesses are handling the current environment. Marvell Technology Inc. (NASDAQ: MRVL) is scheduled to hold its investor day on Tuesday. Cramer expects the semiconductor and networking company to provide updated long-term targets and discuss its role in data-center infrastructure.
Investors will also be watching New York Fed President John Williams. Cramer pointed to Williams' recent comments that there was no need for urgency around another rate move, with markets now assessing whether Friday's weak September employment report could influence the central bank's next decision.
Levi Strauss & Co. (NYSE: LEVI) is scheduled to report Wednesday. Cramer pointed to elevated fuel prices and the possibility of weaker consumer spending as challenges for the apparel company.
PepsiCo Inc. (NASDAQ: PEP) reports Thursday. Cramer expressed caution ahead of the results, citing the appeal of Treasury yields relative to the company's dividend and pressure facing its Frito-Lay snack business.
The broader market is also entering earnings season with a narrower group of stocks driving index performance. Reuters reported that roughly 40% of S&P 500 stocks were down year to date through the third quarter even as the major indexes reached record levels, highlighting the concentration of market gains in a relatively small group of companies.
For investors, the coming weeks will therefore put corporate earnings, guidance and interest-rate sensitivity under greater scrutiny. Cramer's warning is not that making money in stocks has become impossible, but that the market may offer less room for error than it did previously.