What Tech Earnings Will Tell Us About a Second-Half Recession

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If a recession is coming in the near future, technology companies will have been way ahead of the curve in feeling the pain. The Nasdaq preceded the bear market of the broader S&P 500,
and tech executives were some of the first to warn about the dangers of rising Federal Reserve interest rates and weakening consumer spending.

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It is possible that tech companies are, like families, each unhappy in their own way. But even still, they might be useful canaries in the coal mine for the economic challenges ahead. Here are some clues to look for.

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IBM,
which reports Monday, has made it to the upside of a turnaround program and predicts impressive growth. CEO Arvind Krishna said three months ago that spending on IT will outpace economic expansion this year by 4 to 5 percentage points. It will be interesting to see if that held true in the second quarter, when higher interest rates and the fastest inflation in 40 years really kicked in.

Subscriber numbers will be in focus for Netflix,
which reports on Tuesday. If inflation is forcing households to cut back on discretionary spending, TV services might be vulnerable.

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For Tesla,
reporting on Wednesday, the thing to watch will be how Covid-19 lockdowns in China affected the bottom line. The company provides a useful gauge for how badly production overall may have been hit as well as demand, since the world’s second-biggest economy is both a Tesla manufacturing base and one of its largest markets.

Meta Platforms,
the parent of Facebook, and Apple will provide more insights next week. Comparing what tech companies say to predictions from the Fed, which appears to be leaning toward a 0.75 point hike on July 27, may yield a better idea of ​​whether a soft or hard landing is coming.

—Brian Swint

*** Join Barron’s senior managing editor Lauren R. Rublin and deputy editor Ben Levisohn today at noon as they discuss the outlook for financial markets, industry sectors, and individual stocks. Sign up here.

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Sanders Accuses Manchin of ‘Sabotaging’ Climate Change Fight

Sen. Bernie Sanders (I., Vt.) said West Virginia centrist Democrat Sen. Joe Manchin is “intentionally sabotaging the president’s agenda” by rejecting measures to fight climate change and tax the ultrarich. Manchin has said he is concerned about adding to inflationary pressures.

What’s Next: The UK is bracing for extreme weather today and Tuesday, with temperatures that could reach a record 40 degrees Celsius (104 degrees Fahrenheit), the AP reported. People are advised to avoid the London Underground subway, and travel advisories are warning of possible disruptions.

,Janet H. Cho and Liz Moyer

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Fed Leaning Toward 0.75 Percentage-Point Rate Hike

The Fed is more likely to raise interest rates by 0.75 percentage point for the second straight month at its July 26-27 meeting, rather than the full percentage-point increase that economists have been speculating about in recent days, The Wall Street Journal reported.

What’s Next: Fed members have increased rates at their last three meetings: a quarter-point in March, a half-point in May, and a 0.75-point in June, the largest increase at one meeting since 1994. If the Fed raises the rate by another 0.75-point later in July, that would bring the rate to between 2.25% and 2.5%.

,Janet H. Cho

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Boeing ‘Very Close’ to Resuming 787 Dreamliner

Boeing has used the opening of the Farnborough International Air Show to signal some good news about its 787 Dreamliner. Stan Deal, Boeing’s commercial airplanes chief executive, said on Sunday the company was “very close” to resuming 787 Dreamliner deliveries after a two-year hiatus to address manufacturing problems, The Wall Street Journal reported.

What’s Next: Regardless of how orders turn out at Farnborough, Boeing sees big demand for aircraft in the coming years. In conjunction with the air show, Boeing released its commercial market outlook on Friday. The company projects about 39,000 commercial aircraft and freighters needed over the coming 20 years. Simply put, that works out to about 1,950 jets a year for Boeing and Airbus to battle over.

,Al Root

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Rising Crime Incidents Force Restaurants, Grocers to Adapt

More restaurants and supermarkets are limiting their hours, increasing their security, or closing stores entirely to address rising crime. Starbucks said it is permanently closing 16 stores by the end of July after workers reported incidents of visitor drug use, racism, and mental health issues.

What’s Next: Grocery trade group FMI said that after seeing more crime and safety-related incidents in their stores, 72% of food retailers it surveyed have plans for how to prevent violence, and 88% have plans to deal with robberies.

,Janet H. Cho

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Biden Advisor Emphasizes Lower Gas Prices Despite Treasury Forecast

White House economic advisor Jared Bernstein told CNN’s State of the Union that gasoline prices in the US have fallen the fastest in about a decade, brushing aside a forecast that gas could jump back above $6 a gallon this fall after sanctions on Russian oil kick in.

What’s Next: The White House is talking about a price cap that would allow Russia to sell its oil after Dec. 5 but at a much reduced price. That could avoid a global energy shortage while cutting the oil profit Russia uses to fund its war effort, the Post reported.

,Liz Moyer

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Uncredited

MarketWatch Wants to Hear From You

What is inflation going to do to my Social Security tax bill?

A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to [email protected]

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—Newsletter edited by Liz Moyer, Camilla Imperiali, Steve Goldstein, Rupert Steiner

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Credit: www.marketwatch.com /

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