Profit Of Doom

Profit Of Doom
Daniel Johnston

8 months ago2 mins

What’s Going On Here?

Data suggests US companies are bracing for a blow to profit this earnings season.

What Does It Mean?

Earnings season is just around the corner, and the outlook for US businesses isn't too hot right now: with recession fears and cash-strapped customers holding back demand, companies are seriously feeling the pinch. Add increasingly expensive raw materials and borrowing costs to the mix too, and you've got the perfect recipe for skinny margins and underwhelming profit. No wonder Wall Street's earnings forecasts fell by more than the past five-year average last quarter, with more and more companies sounding the profit-warning alarm. All things considered, S&P 500 companies are expected to report a 6.8% dip in earnings last quarter compared to the same time the year before – the biggest drop in profit since the early days of the pandemic, when lockdowns triggered a plunge of over 30%.

Why Should I Care?

For markets: Picking up the slack.

With such a gloomy outlook, you might wonder why the stock market isn't having a minor meltdown: instead, the S&P 500 has increased by over 7% since the start of the year. But take a closer look, and a different picture emerges. Nearly 90% of that rise was down to the success of just 20 firms – many of them big technology companies – whose brawny share prices have masked the frailty of their peers.

The bigger picture: Don’t be hasty.

Sure, most industries are set to shrink, but hospitality-related industries, travel, and energy seem to be on track for profit growth. That doesn’t mean you should start overhauling your portfolio lickety-split, though: remember, these are just expectations – and stocks’ performance from here on out will depend on how they stack up against the cold, hard reality. And nothing’s a sure bet right now, with analysts warning that the fallout of recent bank failures could spill into next quarter too.



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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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