JP Morgan Lays Out Case For Rough Earnings Season
JP Morgan has published its latest “Guide To The Markets.”
It’s a 71 page report filled with charts and data.
You can view the entire report at this link.
We’ve reviewed the report and our conclusion is, if you have lived through 2022, you know what it says.
But there was one outstanding part that we found particularly timely and useful for the upcoming earnings.
This section had two charts that portend a tough run for earnings and which could, ultimately, keep a lid on the current rally too.
The first chart is about profit margins for the S&P 500 companies.
You can see what happened to earnings during the past three official recessions.
Even slight adjustments to demand for a company’s product or labor and raw material costs can cause margins to disappear.
And if margins shrink, earnings shrink, and shareholder value shrinks.
Therefore, margins are one of the real risks to the current rally.
And that’s where the next chart comes in.
It’s about a survey from National Federation of Independent Businesses (NFIB).
The survey covers business owner and management expectations over the next three months about prices, costs, and sales.
The chart is below:
It’s ugly.
The bad parts, labor costs and prices, are both expected to go up.
Meanwhile, the good part, sales, are expected to go down.
This is a terrible combination.
Granted, this is for small businesses, but large companies are facing the same economy too.
There’s no way this doesn’t show up in poor earnings.
JP Morgan’s “Guide to the Markets” doesn’t provide many direct conclusions, just the data.
But the data they’re showing us one conclusion.
Considering the state of the market rally, there’s a lot of risk in many stocks.
And the few safe places to be will be in sectors that aren’t facing recessions or those deep value plays where expectations are already low.
