Companies will soon start releasing their latest quarterly results and investors have been warned that inflation will get worse.
Retailers, automakers and various manufacturers are warning all investors that supply chain crises and rising raw material costs are driving up costs and eroding profits. The third quarter COVID-19 resurgence has shaken many industries, just as it has recovered from the pandemic downturn.
Many companies were able to pass higher costs on to consumers quietly earlier this year as the economy recovered from the pandemic. However, personal consumption, which is the key to economic recovery, slowed slightly over the summer due to the increase in COVID-19 cases. Nevertheless, demand for many products remained strong, but sales of many products were sluggish due to lack of supply from companies.
Jay Pestrichelli, CEO of investment firm ZEGA Financial, said:
Paint maker Sherwin-Williams has adjusted its sales forecast for the third quarter due to supply issues and rising costs. Home builders, including PulteGroup and Lennar, have warned that rising material costs and supply delays are negatively impacting operations. Nike was one of the biggest names in the retail industry that lowered its sales forecast due to supply delays.
Many other companies issued similar warnings when the Federal Reserve changed part of its inflation message. The central bank spent most of the year saying the rise in inflation was short-lived and would lead to a recovery. At the end of September, Federal Reserve Chairman Jerome Powell admitted that inflation was longer than expected and could continue into the next year.
Fears that inflation will become a long-term reality for the economy are reflected in the bond markets. Treasury yields over the past two years have fallen from 1.32% to 1.54% in the past two weeks.
Analysts warn that sustained inflation could continue to weigh on corporate profits and the motivation for consumer spending. This means a continued slowdown in economic growth.
“At the end of the day, when growth slows down and inflation rises, stagflation occurs, which is bad for the market,” Pestricheri said.
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Inflation upsets corporate balance as recovery slows | WGN 720 radio
Source link Inflation upsets corporate balance as recovery slows | WGN 720 radio