The term, "earnings season" has always seemed misleading. “The market” is a forward-looking entity, always anticipating the next card in the deck. In the market’s eyes (or ears), forward guidance from CEOs and CFOs is far more interesting than a company’s most recent financials, given its role in estimating future cash flows and earnings.
Furthermore, in our opinion, there is no better way to get a pulse on the headwinds facing the economy than directly from the people running the companies. Insights directly from the horse’s mouth are far more valuable than commentary from the media and their interviews with fund managers. This quarter’s earnings release commentary will likely feature more companies issuing forward guidance to help clue us in on the themes that will dominate the next twelve months.
A massive earnings rebound has been priced in by the markets, so it’s likely that the year-over-year earnings growth numbers will not mean much.
We anticipate that the following will be three key themes facing the U.S. business over the next 12 to 18 months:
The demand for employees has been outpacing supply for some time now. A period of sustained upside wage pressure could have a significant impact on longer-term inflation expectations. A cap on productivity equates to an inherent lowered ceiling for profitability.
Look no further than a local car dealership to see the effect that a shortage of semiconductors has brought on automobile manufacturing. This is just one example of a supply-chain that is working through supply issues and a backlog.
We know that the best companies do not sit on their hands and wait for risk factors to subside. Business investment is an important component of the U.S. economy and the optimism to invest could signal that we are in the relatively early stages of the next economic cycle.
We will be focusing on answers to these questions and will continue to inform our readership. Be sure to sign up for our weekly email newsletter to stay up to date with Blue Chip Partners.
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