Investors and companies are becoming increasingly wary of the war in the Middle East, which poses a major risk to corporate performance. Sales have fallen due to widespread boycotts in Islamic countries, and attacks on cargo ships in the Red Sea have threatened supply chains.
Those headwinds pose a risk to the record rally in U.S. stocks, according to a Bloomberg analysis of hundreds of earnings calls. By the middle of the first quarter (January-March), mentions of the Red Sea and “geopolitics” were almost on par with the total for the previous three months.
CEOs Are Worried About Geopolitics Again
Mentions of Red Sea or geopolitics on earnings calls are on the rise
Source: Bloomberg
Earnings forecasts for the next 12 months for companies in the S&P 500 index are at record highs, suggesting that analysts are pricing in a very positive scenario of stronger-than-expected U.S. economic growth and Fed interest rate cuts. . Any serious threat to corporate profits or signs of a resurgence in inflation could undermine the gains in recent months that have propelled the S&P 500 to record highs.
Oil prices have already risen this year, partly due to concerns that the war between Israel and the Islamic group Hamas could escalate into a larger conflict in the region. At the same time, cargo ships have been forced to avoid transit through the Red Sea and Suez Canal due to attacks by Yemen’s pro-Iranian Houthi rebels.
“The geopolitical context is a risk,” said Nicole Koenitzer, portfolio manager of the Buffalo International Fund at Koenitzer Capital Management. “If these pressures persist for a longer period of time, they could weigh on corporate profit margins and could even become a source of inflation as costs are passed through to prices. Such a scenario has not been factored into our forecasts.” .
Investors view geopolitics as the second-biggest stock risk after inflation, across industries ranging from consumer goods companies to social media to freight companies, according to the latest Bank of America fund manager survey. Shown. However, these two risks, inflation and geopolitics, are related. According to the study, if the situation in the Red Sea and the Middle East escalates further, upward pressure on oil prices and freight rates is expected to increase.
news-rsf-original-reference paywall">Original title:Record US Stock Rally Is Under Threat From a World in Turmoil(excerpt)
2024-02-18 15:36:00
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