Photo: Bloomberg TV
David Kostin and the Portfolio strategy research team at Goldman Sach’s just published their massive “S&P 500 Beige Book,” a collection key macroeconomic themes discussed by companies during the current earnings season.We summarize the four key themes here:
Global economic slowdown
Demand strength is shifting from overseas customers to domestic customers. Also, “they noted the reluctance of customers to place new orders given lackluster end market demand.” Very few reiterated strength in emerging market demand.
Challenging pricing environment
Customers are pushing back aggressively on price increases. “Customers…shifted to lower-cost alternatives in some cases in an effort to preserve profit margins. Some managements explained strategies for protecting future margins.”
Policy uncertainty hampers business activity
Regulatory and policy uncertainty remains elevated world-wide. “Firms expressed a uniform desire for regulatory clarity. Domestic topics of note included the election and looming US “Fiscal Cliff”, health care reform, stock dividend and R&D taxation, and infrastructure investments. Prominent global themes included the European sovereign situation and austerity measures, as well as potential Chinese stimulus.”
Dollar strength had negative impact on 2Q results
“Dollar strengthening created FX headwinds for corporations. Some firms experienced top- and bottom-line impacts while others hedged effectively.”
Yesterday, economist David Rosenberg noted that the inventory-sales ratio was on the rise, which could lead to weakening pricing power. Based on Kostin’s second theme, it looks like this is already happening.