Although almost unprecedented growth in corporate earnings pushed the S & P 500 to an all-time high in 2021, Bank of America CorporationIt says companies in the index are increasingly worried about the impact of inflation.
Inflation was discussed at an all-time high during the second-quarter earnings call, BofA said in a report on Monday. Inflation has been mentioned nine times more than in the same period last year, in line with the increase in the first quarter.
Some companies expect cost pressures to exceed pricing power in the near term, highlighting rising inflationary pressures. Inflation has continued to rise in recent months as the US economy continues to recover from the recession triggered by the COVID-19 pandemic.
The increase in the number of times inflation is mentioned comes as US companies (excluding the financial sector) report a record net profit margin of 13.1 per cent in the second quarter.
"however, we are beginning to see a good inflationary environment turning into a bad inflationary environment, with many companies saying cost inflation is accelerating, especially in terms of wages," said Savita Subramanian, head of US equities and quantitative strategy at BofA. To reflect this risk, the consensus forecast for third-quarter and fourth-quarter profit margins has fallen to 12.6% and 12.5%, respectively, she said.
Labour-related inflation surged 117 per cent in the second quarter from a year earlier, compared with 12 per cent in the previous quarter, indicating rising wage pressures. Compared with 17% in the first quarter, the number of companies pointing to supply chain inflation has more than doubled.
Inflation is most mentioned in raw materials and staple stocks, while discretionary consumer goods and industrial stocks have the most mention of labour inflation, which are the most labour-intensive in the S & P 500.
In another issue that warns the market, Bank of America Corporation said business confidence had fallen from last quarter's record high, which could be a sign that business confidence may have peaked as companies face inflation concerns and an increase in infections with Delta mutants.
90 per cent of companies in the s & p 500 have reported second-quarter earnings, with average earnings per share exceeding expectations of 15 per cent to $52.29, BofA said. The s & p is up 18 per cent so far this year, but BofA's target at the end of the year is 3800, meaning the index is about to fall back.