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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.