Macroeconomic factors could be pointing towards slowing economic growth in the US. Some of the emerging challenges for the US economy are emanating from rising commodity prices, shortakes in labour leading to increase in cost to the companies. Consumer prices had increased by 8.5% in March thus stoking inflationary fears in the near future at least. The growing potential of recession in Europe amid the Ukraine-Russia war remains another factor to keep an eye on.
S&P 500 companie’s reporting of net profit margin for the first quarter Q1 2022 remains a matter of concern. Robust corporate earnings remains a crucial factor for the stock values to move up in the long term.
John Butters, Vice President and Senior Earnings Analyst at FactSet has a take (as on April 14, 2022) on the S&P 500 for Q1 2022 earnings .
The (blended) net profit margin for the S&P 500 for Q1 2022 is 12.1%, which is below the estimate of 12.3% at the start of the quarter (December 31).
It is also below the year-ago net profit margin of 12.8% and below the previous quarter’s net profit margin of 12.4%. However, it is above the five-year average net profit margin of 11.2%.
If 12.1% is the actual net profit margin for the quarter, it will mark the third straight quarter in which the net profit margin for the index has declined.
What is driving the decline in net profit margins for the S&P 500? Higher costs are likely having a negative impact on net profit margins. Producer prices increased by 11.2% in March, which was the largest year-over-year increase on record.
During the previous earnings season, 356 S&P 500 companies cited “inflation” on earnings calls for the fourth quarter, which was the highest number in at least 10 years.
However, companies are also raising prices to offset these higher costs, as the S&P 500 is projected to report revenue growth above 10% for the fifth straight quarter.