Medicare Agent News: Corporate Profits Are Doing Fine

Tuesday, May 17, 2022

Corporate Profits Are Doing Fine

By Alex Eule | Monday, May 16

Run of the Mill. After a big rally on Friday, stocks couldn't hold onto their momentum. Tech investors were back in a selling mood, with the Nasdaq Composite down 1.2%. That's a run-of-the-mill loss for 2022; the tech-heavy index has had 38 larger one-day losses this year, including two 4%-plus declines this month.

Among the latest reason for worry was a new Empire Manufacturing Survey, which showed that business activity in New York State declined in early May. Shipments fell at their fastest pace since early in the pandemic. The report adds to those worried about a looming recession.

Meanwhile, there's no escaping inflation talk. A new analysis from FactSet shows that 85% of companies have talked about inflation during their first-quarter earnings calls. (There are about 40 reports still to come, with multiple retailers reporting this week. Barron's Teresa Rivas has more on retail earnings here.)

Companies are having success passing along the higher costs; profit margin estimates haven't changed all that much since earnings season started. FactSet notes that the average net profit margin estimate for S&P 500 companies this year is now 12.5%, down just slightly from 12.7% at the end of March. Of course, the good news for companies' bottom lines is not so good for consumers' wallets.

Jeff Buchbinder, equity strategyst for LPL Financial, writes that the margin news is significant going forward:

In this inflationary environment, the revenue is coming through. But it is profit margins that were the biggest test for corporate America this quarter, and companies passed that test with flying colors. Not only did margins hold up well quarter over quarter—falling less than anticipated—but analysts’ estimates for margins going forward still show margin expansion from current levels. We know analysts’ estimates tend to be overly optimistic, but we still view the trajectory of these forecasts as a positive sign for future profitability.

The S&P 500 fell 0.4% today, while the Dow Jones Industrial Average managed a small gain of 27 points, or 0.08%.