Warning signals are frequent! "Weak demand" becomes a hot topic at European and American earnings conference calls.

Analysis of the components of the S&P 500 Index and the STOXX Europe 600 Index shows that "weak demand" has become one of the hottest phrases in earnings conference calls as the earnings reporting period has just passed halfway. According to data since 2000, if the current pace of mentions continues in the coming weeks, it will be a record high.

Intelligent Finance APP noticed that from consumer-facing companies to technology and industrial companies, quarterly reports reflect deeper concerns, from slowing demand to the impact of inflation and rising interest rates on cost-conscious consumers.

Demand concerns plague US and European corporate profits

Many flagship companies in various industries, including Meta Platforms (META.US), Worldline, Ericsson, Alstom, FMC, Hennes & Mauritz AB, Pfizer (PFE.US), and Sanofi, have issued warnings about their prospects.

The aggressive interest rate hikes taken by major central banks to curb inflation are having a negative impact on the economy, reducing demand, increasing financing costs, and depressing valuations. This situation is more pronounced in Europe, where PMI data has been weak and has shown no signs of recovery. In addition, although companies have passed on higher costs to consumers for most of this year, the situation now appears more challenging, putting pressure on profit margins.

Barclays strategist Emmanuel Cau and his team wrote in a report tracking earnings, "Companies' views on the economy and prospects are pessimistic." "We analyzed the records of the STOXX 600 Index components that have released earnings reports so far, and the results show that compared to the past few quarters, most companies have become increasingly pessimistic about the economy."

Strategists say that companies seem to be more cautious about the overall outlook for their business demand. They believe that the weakening of business confidence is reflected in the trend of significantly higher profit warnings this quarter. They added, "As nearly half of the reports have not been completed yet, the final number may be significantly higher than in the past few quarters."

Caterpillar's stock price plummeted on Tuesday due to signs of slowing demand for its iconic yellow machinery products, while Volkswagen's declining performance has further raised concerns about consumer confidence. Earlier this month, Tesla (TSLA.US) released a disappointing earnings report. Bank of America strategist Savita Subramanian and her team stated in a recent report on the companies in the S&P 500 index that while mentions of "weak demand" have increased, corporate confidence has declined and guidance has reached average levels. They wrote, "Companies lack the incentive to provide positive expectations until there are signs of a true recovery in demand." They pointed out that the actual sales growth rate for companies is still -2.5%, with a negative YoY comparison.

Andreas Bruckner of Bank of America noted that Europe is facing another concerning trend. He pointed out that only 34% of companies in the STOXX 600 index have reported better-than-expected performance, the lowest level since the first quarter of 2014 and well below the long-term average of 52%.

In a report on Monday, Bruckner wrote, "Sales are at nearly a decade low, and sales surprises are at a historic low."

In the past few weeks, analysts have started to lower their expectations for the data, which, although strong, has been lackluster. However, Barclays' Cau stated that while guidance is expected to be further downgraded, the market may have already priced in most of the expectations.

He said, "The significant market decline has already indicated that investors are aware of the upcoming guidance downgrade, and when next year's earnings expectations are finally significantly lowered, this may ultimately limit the downward trend."