What happened
Earnings season is here, and Wall Street is excited about it.
Bright and early Monday morning, Bank of America (BAC 1.70%) "beat" analyst expectations for its third-quarter earnings, reporting an $0.81-per-share profit where the Street had expected only $0.77. This wasn't good news only for Bank of America, however. Getting a tailwind from those results -- and even more so from comments by the BofA CEO -- shares of all sorts of companies tied to America's consumer economy are soaring today.
As of 11:11 a.m. ET, shares of internet search giant Alphabet (GOOG 1.25%) (GOOGL 1.27%) are gaining 3.8%, home goods store chain Bed Bath & Beyond (BBBY) is up 4.5%, and online shopping powerhouse Shopify (SHOP 4.90%) is leading consumer stocks higher with a 5.8% gain.
So what
So what do these three stocks have in common with each other and with Bank of America? Simply this:
In the course of describing how his business beat earnings with a stick this morning, Bank of America CEO Brian Moynihan described his bank's observations of the current financial health of American consumers -- and the prognosis is good. Payment transactions of all sorts grew 10% in volume year over year last month and are maintaining that pace into October. Indeed, not only are consumers spending freely, but they have the money to enable them to continue doing so. Bank account balances are still above the average levels from before the pandemic, consumer credit ratings are well above average, and delinquent accounts are well below average.
So what does that mean for consumer-facing companies like Alphabet, Bed Bath & Beyond, and Shopify? Simply put, it means investors can expect to see more consumers searching for things to buy on Google (and clicking ads and generating revenue), shopping online at stores powered by Shopify, and following online leads out into the real world to shop at Bed Bath & Beyond's brick-and-mortar stores.
It means, in a nutshell, that the American consumer remains alive and well -- and that the companies that cater to consumers should do well, too.
Now what
Granted, Bank of America's CEO's comments were broad and general and will not apply equally to all consumer-facing companies. Bed Bath & Beyond's Q2 earnings report late last month was a reminder of that, featuring a 28% decline in sales year over year and a staggering earnings miss that was 74% worse than Wall Street had expected.
Alphabet and Shopify, however, might do better. Both companies are expected to report quarterly earnings next week, with the Google parent reporting on Tuesday, October 25, and Shopify's report coming two days later on Thursday, October 27, according to information from Wall Street Horizon.
Currently, expectations are set low for both companies. According to Yahoo! Finance estimates, Alphabet's earnings could be down as much as 10% year over year. Shopify is expected to deliver as much as a $0.10-per-share loss versus a profitable report a year ago.
And granted, that sounds pretty bad. Curiously, however, analysts also expect both Alphabet and Shopify to report improved sales year over year. And that fact, plus the low hurdles that analyst predictions have set for them, raises the potential for one or both companies to beat earnings expectations when they report next week. If Bank of America's assessment of the health of the economy proves correct, these companies could actually deliver positive surprises.
