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Investors will have a lot to do with the start of the third quarter earnings season this month, most of which could prove far from flattering for their portfolios.
This is the latest temperature control in the markets from the Goldman Sachs team.
The investment bank’s chief U.S. equities strategist, David Kostin, on Monday warned of four risks to investors in upcoming corporate earnings reports: (1) chain bottlenecks ‘supply ; (2) rising oil prices; (3) inflationary labor costs; and (4) slowing economic growth in China.
Kostin reserves his most disturbing comments on anything related to the supply chain.
The strategist found that of the 26 S&P 500 companies that have released results since early September, 18 mentioned supply chain issues in their earnings calls. Several of those names that have disappointed investors in recent weeks due to supply chain bottlenecks include Nike and Bed Bath & Beyond.
Sherwin-Williams, on the other hand, pre-announced disappointing third quarter results and slashed its outlook for the full year.
“A key risk is that the normalization of the supply chain takes longer than expected and that the unmet demand today is not fully recovered in the following quarters,” Kostin said.
The risks described by Kostin are expected to make the third quarter earnings season very different from the second quarter.
Analysts expect S&P 500 earnings growth of 27% year-on-year for the third quarter, down sharply from the 88% growth rate in the second quarter. S&P 500 net profit margins during the quarter were 11.6%, below the 12.2% achieved in the first half of 2021.
Kostin adds, “Economic growth and earnings growth are slowing down and core comparables have become more difficult.
The market may finally start to take Kostin’s warnings about corporate fundamentals more seriously.
On Monday, stocks were hit by another dose of massive selling, driven by further bloodshed in the high-growth Nasdaq Composite. All of Dow’s components were in the red by noon, with the exception of relative safe havens Verizon, Merck and IBM.
Concerns about the pace of job growth last month, which will be reported on Friday, will not help sentiment on Monday.
“I think there would be a negative reaction from the market [if the jobs report misses estimates], to be honest with you. We were above consensus last month and were surprised on the downside. I think if you got another weak impression, people would start to wonder about the cumulative effects of COVID variants on economic growth. We would probably make people wonder if the Fed will be able to cut its timeline if we were to get another weak impression on the payroll. This is a very important report, “said Stuart Kaiser, head of UBS equity derivatives research on Yahoo Finance Live.
Brian Sozzi is an editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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