In the wake of Q4 earnings season, Goldman Sachs is out with its “Beige Book” highlighting the macro anecdotes from company conference calls.
Goldman’s David Kostin extracted four key themes:
Theme 1: Margin expansion will be difficult in 2014
With S&P 500 profit margins hovering near record levels for more than three years, firms continue to look for ways to control costs and increase profitability. In most cases, however, expansion looks unlikely in 2014.
Theme 2: Continued optimism for emerging market growth
Managements cite mixed results in some emerging markets but remain actively invested and confident in the prospects for future EM growth.
Theme 3: Companies ready to spend record levels of cash
Firms continued to highlight dividend and buyback spending but also highlighted intentions to pursue capital expenditures and selective M&A.
Theme 4: FX a common headwind to revenue growth
Many companies pointed to unfavorable FX moves as a headwind to revenue growth in 4Q 2013 and as a likely challenge in early 2014.
The note about profit margins is interesting. While management still believes margins could get fatter, that conviction appears to be waning. And that’s worrying for profit growth and ultimately stocks.