How big is the concern of supply chain disruptions for S&P 500 companies – Findings

Amidst the ongoing geopolitical tensions, supply chain disruptions are having an impact on logistics costs thus elevating the food prices leading to higher inflation.

S&P 500 companies, inflation, supply, central bank, rate hikes, commodity prices
Fed can suppress demand enough to offset the supply-side forces driving up inflation over which the central bankers have no control.

US stocks are tumbling and the markets are already into the bear market territory. The fear of the economy going into recession led by rising inflation and rate hikes is having its toll on the markets. For inflation to reach levels never seen in the last 40-years, the global supply chain could be an issue.

Vivek Goel, Co-founder and Joint Managing Director,Tailwind Financial Service says, “In a scenario where supply side factors ease enough to get commodity prices to stabilize, there would be a scenario of a softer landing, otherwise we expect a more challenging environment for the policy makers to navigate.”

Amidst the ongoing geopolitical tensions, supply chain disruptions are having an impact on logistics costs thus elevating the food prices leading to higher inflation. The global supply chain needs a fix but maybe that won’t come easy.

Meanwhile, the only quick solution available with Federal Reserve Chair Jerome Powell for cooling the fastest inflation in four decades could be to raise interest rates aggressively. The downside – the economy may crash into recession.

Such a scenario is the worry of some economists who see it as the only way the Fed can suppress demand enough to offset the supply-side forces driving up inflation over which the central bankers have no control.

During each corporate earnings season, companies often comment on subjects that had an impact on their business in a given quarter, or may have an impact on their business in future quarters. Through Document Search, FactSet searched for the term “supply chain” in the conference call transcripts of all S&P 500 companies that conducted earnings conference calls from March 15 through May 19.

Of these companies, 338 cited the term “supply chain” during their earnings calls for the first quarter, which is well above the five-year average of 199.

In fact, this is the third highest number of S&P 500 companies citing “supply chain” on earnings calls going back to at least 2010 (using current index constituents going back in time). The current record is 363, which occurred in Q3 2021.

At the sector level, the Industrials (62) and Information Technology (48) sectors have the highest number of companies that cited “supply chain” on earnings calls for Q1. On the other hand, the Materials (93%) and Industrials (91%) sectors have the highest percentages of companies that cited “supply chain” on their Q1 earnings calls during this period.

Net profit margin expectations may have to be revised downwards by the analysts. And, this is what is reflecting in the falling stock prices. The era of easy money looks to be over for now and the high valuations that some of the stocks enjoyed may see its end soon. This, however, could be the time to accumulate quality stocks at lower valuation for the long term portfolio.

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