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Saturday, October 16, 2021

Is the Market Signaling Signs of Fatigue?

According to Bloomberg news, quite a several companies have rung a warning bell that the profits that were being anticipated will perhaps not meet the expectations, which they will be able to assess when the reporting takes place within a month. 

PP Industries Inc. and Sherwin-Williams Co are companies that primarily produce materials and have suffered a considerable setback during disruptions in the supply chain. A study that is conducted by the Bank of America states that although, these companies form only a small part of the S&P 500, however, their earnings have always been related to the index’

Why is a market fatigue alarm impending?

These warnings come since the growth in the economy has slowed down aside from the rise in prices for the end or final products and services are missing. Also, the forecasts and wage pressure is gradually building up. 

Experts are calling it a “corporate misery indicator”, which is also a signal that indicates the worsening scenario in the earnings could impact adversely the broader market. 

The S&P 500 dropped 0.6% in the last five days, which is the second time straight in a week. The Friday drop was the worst in September so far and the last time the figure witnessed a rise was only on September 2nd. As compared to this time last year, the index was high for almost a week consistently. 

What is the likely profit figure that is being marked in the current market conditions? If it is assumed that the S&P 500’s price-earning ratio slides back to the 5-year average figure of 19.6, it indicates an index-wide profit of $228 per share. Those analyzing the figures are a little skeptical about the same. The analysts have slashed estimates for profit since March for the first time and expecting that in 2021, the cost per share would be $200, figures which were compiled by Bloomberg Intelligence show. 

It has also been observed that supply chain bottlenecks and inflation pressure kept mounting throughout the year. It was also noted that those companies that stressed cost-cutting and took adequate measures to tide through the financial global crunch were able to better deliver results. In fact, for 5 quarters consistently, they defeated the profit figure estimates by as much as 15%. 

According to Bloomberg News, the analysts are expected to “play catch-up” with the commencement of the reporting season. One of the main reasons for slow growth is delta variant and other allied factors, however, the rate of growth is still commendable according to a statement by Paulsen, who is the chief investment strategist with Leuthold while giving an interview at BTV with Jonathan Ferro

However, there is another school of thought. Some business leaders are sending caution signals already. This is because the ratio of companies that have above-consensus guidance in comparison to those companies with low consensus guidance has nosedived dramatically. 

According to experts and analysts, if the expectation of the August stall manifests a downward trend, it is likely to impact the market at large. 


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Josie Patra
Josie Patra is a veteran writer with 21 years of experience. She comes with multiple degrees in literature, computer applications, multimedia design, and management. She delves into a plethora of niches and offers expert guidance on finances, stock market, budgeting, marketing strategies, and such other domains. Josie has also authored books on management, productivity, and digital marketing strategies.

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