Those who hoped that 2023 would be a nice straight-up recovery from last year's bear market felt disappointed Thursday morning, as Wall Street saw stock market indexes give up some more ground after Wednesday's steep drop. Market participants cited concerns about earnings season, uncertainty about the Federal Reserve's next move, and brewing trouble in Washington over the statutory federal debt ceiling, and stock index futures were down almost 1% before the regular trading session started.

Investors have watched the latest financial reports from key companies to get a reading on the current state of the economy from the perspective of both consumers and businesses. The releases from Discover Financial Services (DFS -0.15%) and Alcoa (AA -0.59%) helped shed some light on how various parts of the economy are faring, and market participants did their best to draw useful conclusions that they can put to work in evaluating other industries as well.

Discover signals potential consumer weakness

Shares of Discover Financial Services were down 8% in premarket trading Thursday morning. The diversified financial company reported its fourth-quarter financial results, and shareholders saw a mix of strong asset growth but concerning trends among its consumer credit customer base.

Discover's financial results were reasonably solid. Net interest income jumped 24% year over year to $3.07 billion, and noninterest income vaulted higher by nearly half from year-ago levels. However, a big jump in Discover's provision for credit losses weighed on the bottom line, with net income falling 3% to $1.03 billion even as earnings per share rose 4% to $3.77.

Discover boasted record loan growth of 20% to $112 billion, with notable gains in both credit card balances and personal loans. Higher interest rates helped support wider net interest margins, also supporting the consumer finance company's results.

However, what spooked shareholders was news that Discover's charge-off rate jumped from 1.37% in the year-ago period to 2.13%, with a big spike higher in charge-offs on the credit card side just in the past three months. Delinquency rates saw similar gains, raising questions about the power of consumers to help the economy avoid a recession. Despite ongoing stock buybacks from Discover, investors aren't happy to see customers potentially having problems paying their card bills and loan balances, and that has the potential to continue into 2023.

Alcoa suffers sales declines, losses

Elsewhere, shares of Alcoa were down 6% in premarket trading. The aluminum company's fourth-quarter financial results showed ongoing headwinds from challenging market conditions and suggested those obstacles could remain in place for 2023.

Alcoa's financial results were weak. Revenue fell 20% year over year to $2.66 billion, although the aluminum company did manage to post a slightly higher sales figure for the full 2022 year than it did in 2021. Alcoa lost $123 million on an adjusted basis, working out to $0.70 per share and widening dramatically from its performance in the third quarter of 2022. Full-year adjusted earnings fell 29% to $4.83 per share.

High raw materials and energy costs weighed on Alcoa's results, particularly in conjunction with lower pricing in raw alumina and the broader aluminum markets in the fourth quarter. The aluminum specialist anticipates continuing to boost corporate efficiency in an effort to maintain cost discipline.

However, Alcoa anticipates that alumina shipments in 2023 could come in at 12.7 million to 12.9 million metric tons, down half a million tons from the past year. Flat aluminum shipments and rising costs could put continuing pressure on earnings. That doesn't bode well for Alcoa's near-term recovery hopes, and it signals that industrial buyers of lightweight metals might not be as healthy as investors would like.