The Federal Reserve has begun to clamp down on American companies

Beauty is in the eye of the beholder.

Overall, this has been a good earnings season.

Some major companies have crushed earnings estimates — including tech giant Microsoft and soft drink seller Coca-Cola. The results themselves were also good, given the growing geopolitical turmoil, rising fuel prices, and US consumer caution.

Of the 235 or so S&P 500 companies that reported third-quarter results, sales growth was 5.1%, according to data from Julian Emanuel of EvercoreISI. Earnings expanded 14.5%. Sales and earnings surprised the consensus by 0.6% and 8.9%, respectively.

Not too shabby.

But dig beneath the surface as we do here at Yahoo Finance, and you can see — and sense — the growing pressure on Corporate America’s financials and future plans.

Why? Look no further than the 11 interest rate increases the Fed has made since its tightening campaign began in March 2022.

I’m shocked that the market is not digesting this prolonged squeeze (or maybe it is, hence the Nasdaq correction), and how it could shape stock prices in 2024.

One CFO of a technology company with a market capitalization of more than $100 billion told me that higher interest rates are starting to penetrate all areas of his business. This includes hiring plans, capital allocation and new deals. I can’t say this CFO was panicking on the phone, but there is new pressure building on their operating model to start making changes with the goal of cutting expenses.

This CFO is not alone.

Here’s what several senior leaders told me on Yahoo Finance Live about the Fed’s increasingly widespread tentacles. Keep all this in mind when Federal Reserve Chairman Jerome Powell takes the podium later this week to reiterate his position that inflation must be stamped out — even at the expense of American businesses and economic growth.

“I’m not an economist. What I will tell you is that I think we’ve reached a level where people are skeptical about investment, not in infrastructure, not in public-private partnerships, but where people have an opportunity to delay, especially in private developers. “I think they’re working on the math because of the interest rates.”

The story continues

“Maybe for lack of a better analogy, I like to call the housing market right now Dr. Jekyll and Mr. Hyde. The reason I say that is because you have two sides. New housing — you’ve all seen, demand is strong because there’s strong demand for new housing.

The other side is existing home sales, which represent a very large portion of our overall demand. And existing home sales, as you can all see, are now below 4 million, you have to go back to 2010. So, you have this weird situation where you have a structural undersupply of the market, which results in positive new home sales. But right now, there aren’t enough homes in inventory to change hands because everyone is afraid of losing out on attractive mortgage interest rates, etc.

So these two trends are very opposite right now. Over time and over the long term, we say over and over again that we are very optimistic about American housing in the medium and long term. The housing sector in the United States is in short supply by 2 or 3 million units. At some point, the market will regain its balance.”

“Yes, that [higher rates] Do [impact our planning]. We actually announced at the same time as we announced our dividend program that we would be moving a little faster than planned to our target leverage ratio of 2.5x. We will get there by next year from 2.7x and changing now. As you know, we manage our balance sheet based on rising interest costs. But remember, we are also moving to more and more investment grade.”

Brian Susie He is the executive editor of Yahoo Finance. Follow Susie on Twitter @Brian Susie and on LinkedIn. Advice on deals, mergers, activist positions, or anything else? Email [email protected].

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