According to Oxford Economics, investors are paying attention to signs that inflationary pressures are declining profitability, with more resilient companies favored in the stock market.
“This is an increasingly rewarding environment for pricing and productivity,” said Daniel Grobner, director of equity strategy at Oxford Economics, in a report Thursday. “As costs continue to rise, US profit margins can be under pressure in the short term.”
According to the report, many estimate that supply chain disruptions and labor market shortages are pushing up corporate costs, with profit margins peaking in the second quarter. S & P 500 Index Companies
Grobner said these margins could “moderately decline” in late 2021, squeezing US equities without compromising the bull market.
“Sectors and equities with a solid track record of maintaining profit margins are beginning to outperform, and this trend may continue in the short term,” he said. Investors may continue to favor companies with “high pricing power and scope to grow and sustain productivity gains.”
And consumer products
The sector is in the best position to maintain profitability as coronavirus delta variants continue to disrupt the pandemic economy. According to Grobner, the “most vulnerable” sectors in the current environment include food and pharmaceutical retail, chemicals and automobiles.
According to the report, the premiums investors pay for stocks of highly price-determining companies have increased significantly in recent months, beyond pre-pandemic levels. “This suggests that investors are already paying for greater certainty in their earnings,” Grobner warned.
“If the basic case that cost pressures eventually prove to be temporary is correct, the low-priced electricity sector and equities could once again gain an advantage towards 2022,” he said. Is writing. As a result, Oxford Economics does not “indiscriminately” support companies with high pricing power.
For example, “We’re currently overweighting healthcare because this sector looks relatively cheap, but technology is overweight because it’s rated better than past standards,” Grosvenor said. increase.
Investors are paying for stocks whose corporate profits resist the pressure of inflation, according to strategists.
http://www.marketwatch.com/news/story.asp?guid=%7B20C05575-04D4-B545-7642-9687F7BDCE17%7D&siteid=rss&rss=1 Investors are paying for stocks whose corporate profits resist the pressure of inflation, according to strategists.