JPMorgan’s U.S. equity strategy team used text-mining tools to analyze more than 25,000 S&P 500 companies’ earnings transcripts, conference calls and Q&A sessions over the past couple of years and unearthed five key themes in Q4 of 2018.
1) Tariffs are still a concern
While U.S. companies continue to fear the uncertainty surrounding tariffs and the U.S.-China trade war, there’s been a decrease in mentions during Q&A sessions, signaling that some companies are better positioning themselves against any trade-related impact, according to J.P.Morgan strategist Dubravko Lakos-Bujas.
“At the industry level, there has been an uptick among Tech Hardware, Household & Personal Products, Retailing, Capital Goods, and Autos. On the contrary, Materials, Food & Beverage, and Consumer Durables have seen a noticeable decline,” he wrote in a note to clients on Sunday.
However, there was an uptick in tariff-related concerns from the retail, auto, tech and personal products industries, while there was a decline in mentions from the materials, food and consumer durables industries.
“They are managing tariffs by raising prices where possible, idling and shifting production to geographies unaffected by tariffs, and/or passing cost to suppliers,” Lakos-Bujas explained. “If a trade deal materializes, it will remove uncertainty and could be a source of positive revisions since this catalyst is mostly not in consensus numbers.”
2) Input costs weigh on trade-sensitive industries
Input costs were a key theme among U.S. corporations as a whole, but there was a noticeable shift from commodities-related concerns to trade-related costs, according to Lakos-Bujas. Trade-sensitive industries such as retail and autos expressed the most concern over increasing input costs.
“With commodity prices rising sharply [year to date], input cost concerns could resurface in the coming quarters, especially for [Consumer] Staples,” Lakos-Bujas wrote.
3) Rising wages are bad for some sectors, but...
Though many market watchers believe rising wages remain a significant headwind for major U.S. companies, fewer S&P 500 corporations have cited higher wages as a notable risk. On one hand, labor-intensive sectors such as consumer discretionary and real estate are concerned about rising labor costs that come with a tightening labor market. However, tech, health care and financials did not discuss rising wages as much of a concern in their company reports.
“Since the latter makes up ~60% of S&P 500 market cap (and growing), the expanding labor market should be a net positive for S&P 500 profits through rising demand/revenue, which should more than offset wage pressures at this point in the cycle,” Lakos-Bujas said.
4) Geopolitical risks at 5-year high
Energy, tech, transportation and banks most often mentioned concerns about the current geopolitical landscape. According to Lakos-Bujas’ research, energy companies noted that sentiment surrounding crude oil’s supply and demand was negatively impacted by geopolitics.
Additionally, energy companies also blamed the partial U.S. government shutdown for delays in regulatory approvals.
Lakos-Bujas added that tech hardware companies are increasingly concerned about geopolitical risks heading into the first quarter of 2019, including Brexit, U.S.-China relations, unrest in emerging markets.
And banks, Lakos-Bujas noted, “acknowledged still high geopolitical risks impacting the global economic growth outlook and reduced client activity.”
5) Strong U.S. dollar a headwind
Currency headwinds remained a key concern among automakers, food & beverage and materials companies. Meanwhile within tech, the companies noted that a strong U.S. dollar created some issues within emerging markets. However, if the dollar stabilizes or weakens, “this multi-year drag for US Multinationals could become a tailwind,” Lakos-Bujas said.
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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