Weekly Charts
Q2 earnings season is among us and inflation is being priced in. The Consumer Price Index (CPI) increased 0.9% in June after rising 0.6% in May. This was the largest one-month change since June 2008. The Fed believes inflation is transitory….but CEOs seem to disagree.
Is inflation transitory? From the earnings calls that we’ve tracked this earnings season there are a number of CEOs from all industries who are expressing their concerns on rising inflation. JPMorgan Chase CEO Jamie Dimon said on an earnings call last Tuesday "The inflation could be worse than people think… I think it'll be a little bit worse than what the Fed thinks. I don't think it's only temporary."
Constraints on global supply chains are increasing the cost of shipping and raw materials. The cost of shipping containers is up over 400% YTD. The price of steel, aluminum, and iron is up 30%, 26%, and 37% YTD respectively. Businesses across sectors, from chips maker Micron to food-distributer McCormick, are expressing serious concerns. Despite it being early in this earnings season, we’ve already heard a number of companies talk about difficulty in passing on the costs to their customer, and we believe this will result in margin compression this earnings season.
On the bright side, fiscal stimulus and monetary policy have helped US companies survive the pandemic, and they’re now a strong growth path. Companies continue to report that consumer demand is still strong. The CARES Act put cash in the pockets of the consumer, which has resulted in Americans paying down debt and doing what we do best—buying things. Low-interest rates are also driving CEOs to start new projects and refinance existing debts. It has been a common theme this earnings season—companies across sectors have been de-levering their balance sheets.
Coming out of this recovery, expectations this season are high. Companies that missed on earnings have paid the price, particularly in the Industrials, Technology and Consumer Services sectors, and companies that beat are seeing little upside in their stock prices. We believe this reflects how perfectly priced equities going into this earnings season. Watch out.
I want to receive Mirador’s research and market updates!
Information presented reflects the personal opinions, viewpoints and analyses of the employees of Mirador Capital Partners, LP, an SEC-registered Investment Adviser. The views reflected in the commentary are subject to change at any time without notice. Nothing herein constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Mirador Capital Partners, LP manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. Visit us at miradorcp.com for more information.