Inflation is top of mind for Corporate America this earnings season, with mentions on earnings calls on track for their biggest jump since the 2022 price shock. S&P 500 executives are set to cite the word, or related terms like cost pressure, more than 1,100 times in discussing third-quarter results, according to Bloomberg projections based on current data. That would be the biggest year-on-year change since mid-2022, when the US consumer price index had surged to over 9%.
While pricing pressures are much lower this time around, the war in Iran has driven a consistent rise in fuel prices. Even excluding food and energy, an underlying measure of the consumer price index rose by more than expected in October. "Inflation is on everyone's radar again," said Marija Veitmane, head of equity research at State Street Global Markets. "A lot of companies are struggling to pass on higher costs to their end consumer, and we're seeing an erosion of pricing power that's beginning to squeeze profit margins."
Consumer-oriented stocks are among the most exposed as inflation squeezes household budgets, while higher interest rates add to the cost of mortgages, credit cards and car loans. Hershey Co. shares fell 2.1% on Thursday as the maker of Reese's Peanut Butter Cups warned consumer spending could be impacted by financial pressures, including during Halloween. Ford Motor Co. also said profit will level off next year as inflation threatens to erode gains from its pickup and sport utility vehicle business. Caterpillar Inc. Chief Financial Officer Kyle Epley said the company was "aware of potential headwinds presented by higher cost inflation," and its stock slumped.
Profit margins are similarly cracking. About 58% of S&P 500 constituents have beaten net margin estimates for the third quarter, among the smallest proportions since the fourth quarter of 2022. The Federal Reserve has also signaled willingness to raise interest rates further, with swaps traders fully pricing in a hike by the January meeting. Daniel Murray of EFG Asset Management warned of potential stagflation if oil prices remain persistently higher, saying a tipping point would be if the oil price stayed sustainably above around $125 per barrel.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing