What's News in Earnings: Insights Into Banks, EVs, Retail and AI

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Hey listeners, I'm Chip Cutter for The Wall Street Journal, and I'm here in The What's News Feed with something new that we're trying out. What's news and earnings are look at some of the main themes that are standing out in the current corporate earnings season. And we're looking at what these reports can tell us about what's going on under the hood of the American economy. Take a listen and let us know what you think. Drop us a line at wnpod at wsj.com.

In this latest earnings season, most companies did fairly well. About 93% of the S&P 500 had released their results through last week, and earnings were up about 4% year-over-year for those companies, according to the data provider fact-set. The earnings reports and the conference calls that go along with them can give us all of you on where corporate leaders see their businesses headed.

Today, we'll be looking at the auto industry and why executives still can't quite figure out what to do about electric vehicles. Plus, we check in on retailers and how they're thinking about setting prices ahead of the holidays. And we'll look at the split in American life that the latest bank earnings reveal.

Let's start with the auto industry, which is in a tough spot. Demand is down and some companies are laying off workers or closing factories. The transition to electric vehicles is bumpy and taking longer than many anticipated. Joining us to talk about what's going on is Sean McLean, our auto industry reporter. Sean, thanks for being here. Thanks for having me. What are automakers saying in the earnings calls? How are they navigating this environment? The biggest question facing automakers today is where EV demand is headed.

GM has surprised all of us this quarter with how well their gas business has buoyed this sluggishness in the EV business. Ford has been losing money hand over fist. A lot of the EV businesses have been losing money. On the other side, you have companies like Toyota, which have been more cautious about jumping into EVs and are betting more on hybrids, which have taken off especially in the US. And you're really seeing that boost their earnings.

So there's also the Trump factor in all of this. The president-elect could make it more difficult for consumers to claim tax credits for buying EVs, but he also now has Tesla's Elon Musk on his side. So how are automakers adapting to these possibly contradictory trends? Car makers are very worried about whether or not Trump could throw a wrench in their product planning, which goes out five to 10 years in advance.

The Elon Musk factor is a huge question mark. We don't know how Elon Musk feels really about tax credits. He says he would not be opposed to them going away. Partly, a lot of analysts believe is because he's the only one that really makes money on EVs. And so the tax credit going away will hurt others more than him, maybe. But certainly the biggest worry right now in the auto industry is what a Trump administration will mean for tax credits on EVs, but also for imports from Mexico where a lot of them build cheaper vehicles.

Let's move to China. What's the turnaround plan there for US companies? For a lot of US companies and European companies who are in the same boat in China, it's a question of trying to figure out the right balance of whether or not it's worth fighting back in an expensive but low profit market like China or concentrating their money in more profitable markets.

So is there an automaker that you're watching or you think we should all watch over the next few months that you think will be particularly emblematic of how the industry attempts to recover and where it goes from here? The industry as a whole is paying attention to Toyota. Toyota, because it has been so cautious with EVs and because it has ridden this demand in hybrids, whether or not that hybrid demand is sustainable,

In the long term, we'll ultimately decide whether or not Toyota is right or wrong. The other is to look forward to our GM and the Ford in the US. GM has been more cautious in the EV rollout and you've seen it in the results. Ford has been more aggressive on EVs and you've seen it in the results. So where those two companies go in the coming year is going to really tell where the US industry is going to land when it comes to competitiveness on the global auto industry. That was our auto industry reporter, Sean McLean.

To get a sense for how the economy is holding up and how consumers and businesses are faring, we turn to the country's biggest banks, including JP Morgan Chase, Bank of America, and others. Wall Street Journal banking reporter Alexander Saidi has spent plenty of time sitting through their results, and he joins us now. Hi, Alex. Hey, Chip. So big banks appeared more confident this quarter than we've seen in the past. What stood out to you as these companies reported their results? We had, for the first time, executives

from the big banks coming forward and saying, we are seeing indications of the so-called soft landing, which refers to the process by which the central bank, the Fed, raises interest rates and does so without putting the economy under recession. So this much discussed elusive soft landing may be here, yet throughout the political campaign, we also talked a lot about inflation being a major concern. Consumers feel stressed. So what do the results tell us about how consumers are shifting their spending patterns?

If you look into the numbers of it, you'll see different types of behavior playing out in different income segments. High-income Americans are spending more. They're very confident. They're spending on leisure and travel.

the more middle-class and lower-income consumers were spending much more on necessities, which is a sign that they are increasingly concerned about their budgets and how much money they have in their bank accounts. We also saw credit card balances continue to remain high, so people are borrowing a lot, still and not necessarily paying back everything on their credit cards over time.

So let's talk about businesses. Companies have been hesitant lately to spend big on new projects or invest in their inventory, new facilities, whatever it might be. What did the bank say in the earnings calls about what's ahead for business spending? They're feeling very good about the prospect of investment banking deals and commercial banking for corporates. Companies are in a much better place probably than the consumer is. They're not too indebted compared to previous economic cycles.

There is also with the election of Trump. I hope that there will be less red tape, less regulation. There are still headwinds. Interest rates are still higher than they were before the pandemic. So that raises the bar to sort of make a successful M&A transaction work.

But people are feeling really good about the signs and the fact that the fundamental economy is well, it's not perfect. It's still strong that companies will at least borrow more, spend more and help the economy chug along. What are you watching in the months ahead? What are you paying attention to? What should we all be watching from banks and financial companies?

I mean, financial regulation is probably the space I'm going to watch the most for the first year, because the Biden administration ended up taking a much more progressive tact than people had assumed they would when it was elected in office. And the Trump administration, seemingly, if they sort of follow the playbook of

the first Trump administration will be much lighter touch. However, there is a populist impulse within the Trump movement, which isn't necessarily pro wall street or pro big business. So the thing to watch is

for especially the really consumer touching regulations like late fees, overdraft, debit card fees, credit card fees. Do they choose to go ahead with those because that is impacting people's wallets, people's spend, which is exactly kind of what they were elected to do? Or do they follow the more traditional Republican playbook and just try to not regulate anything in the financial system? Alexander Sayedhi is a WSJ banking reporter.

Coming up, the state of retail heading into Black Friday and why some companies are hitting limits in raising prices. That's after the break.

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Retailers are beginning to release their earnings reports and some are doing better than others. Target today posted disappointing quarterly results while yesterday discount giant Walmart reported strong consumer demand and increased revenue for the period. It's clear that some companies are hitting their limits on raising prices. Wall Street Journal retail reporter Sarah Nassauer joins us to explain. Hi Sarah.

Hi. So, Sarah, we've been talking about all the ways that people are shifting their spending habits this year. How are retailers and consumer goods companies thinking about setting their prices right now? Are we hitting limits on people's willingness to accept price hikes like we've seen?

I think we've definitely hit the ceiling for most types of products. We've seen retailers like Ikea, manufacturers like Nike, restaurants, Walmart for years talk about trying to get its suppliers to lower prices. And it's a demand issue. People are stretched, even though inflation is cooling. Prices for things you need are still higher than they were a few years ago. And that's the reality for the companies and the shoppers they're going after.

So if you're a manufacturer trying to sell things this holiday season, how are you adjusting? How are you kind of coping with this new world and thinking about how to actually lower the prices of your goods? Two things. One is you've done a lot of work already, right? To reduce cost in the supply chain, to work on where you source things and knowing that customers are going to be sensitive to these prices. So you have to prepare. And then some cases they're accepting lower margins. And in some cases, they're offering discounts. We are seeing a lot of strategic discounting out there.

So what are the company's plans that the Trump administration does follow through on its promises to levy more tariffs on goods that are produced overseas? They're not happy. For now, they're doing a lot of lobbying. They're doing a lot of educating, trying to get folks in Washington to see that those tariffs will increase prices. At the same time, this is not new to them, right? They lived through Trump 1.0, Biden continued those tariffs. I was talking with the CFO of Walmart who said, you know, we've been dealing with this for seven years.

And they have a playbook, right? They negotiate with their suppliers. In some cases, manufacturers have switched where they're manufacturing things. Eventually, they'll raise prices. But for now, they're just saying we don't like this and here's why. Okay. So finally, Black Friday is just around the corner and retail earnings can help us understand what's coming for the holidays. What are retailers expect and what are they doing differently this year?

Well, they're continuing with a later Thanksgiving, which means there's a little bit less time between the moment with psychologically a lot of people start to think about gift buying and Christmas, and that gives them a little less room to play with. But it's already kicked off. That was Wall Street Journal retail reporter Sarah Nassauer.

And finally, it feels like you can't get through a corporate earnings report without hearing about AI. And recent weeks, executives at companies ranging from the furniture giant Wayfair to Disney all talked about the technology as they released their results. Miles Krupa, a tech reporter based in San Francisco, says that we need more data to understand how all these AI bets pay off for big tech. Right now we're in the middle of what the companies are calling a big multi-year build out in AI. They're spending

tens of billions of dollars, really, to build data centers. And what they're doing is they're building it out ahead of demand that they expect in future years. So people have been watching for growth in cloud business companies outside of Amazon, Microsoft, and Google turning to them for cloud services to power AI applications. And we actually got a bit of an uptick in that this earnings period.

I think we're still looking for a bit more granular detail from the companies on what these AI businesses actually look like in terms of real revenue. Right now, we're seeing an uptick in the growth rates, but we haven't seen companies like Google break out, for instance, how much revenue are they making from selling access to their AI models like Gemini? How many subscribers do they have? How much money are they making from it? We're more than a year into Google having this chatbot product, and we still don't know.

Earning season draws to a close with NVIDIA slated to release its results later today, plus John Deere, Best Buy, and others reporting in the coming days. But for now, that's it for this special bonus episode of What's News and Earnings. If you like what you hear, or even if you don't, let us know. Send an email to wnpod at wsj.com. That's W-N-P-O-D at wsj.com.

Today's show was produced by Daniel Bach, Anthony Banssey, and Pierre Banyme, with supervising producer Michael Cosmides. Later today, we'll have the PM edition of what's news out for you as usual. Until then, I'm Chip Cutter. Have a great day.