Slowing Profits, Growth To Drive Stocks, Not Ukraine: Wilson
Although you may be inclined to exasperation vis-à-vis the impossibility of trading a market hostage to geopolitical headline hockey, attributing all of the price action to the standoff in eastern Europe might not be wise.
That's according to Morgan Stanley's Mike Wilson, who suggested investors consider skating ahead of the proverbial puck by focusing on the outlook for growth and corporate profits.
To be clear, there's no arguing that Russia-Ukraine headlines drive the price action from min
I remember the period of inflation that spawned Nixon’s price controls and one consumer outcome was that no one would buy anything except when it was on sale. That led to firms faking sales and adjusting product sizes to keep nominal prices from rising by selling us 14 oz of sausage for the same price as a pound had been. Everything got smaller. The the sale would be to leave the price alone and add “2 extra ozs free) briefly. However, starting then, consumers fell in love for sale prices and a new pattern was formed. This was reinforced in the inflation of the 80s, the era of the rebate. Man, I hate rebates. People have put up with this latest bout with inflation and I suspect it won’t be long until we get another set of strategies from companies to cover it up. BtoB inflation will be a tougher nut.
Corporate America has followed that playbook ever since, to the point where there are many products out there that can’t be “shrunk” any further w/o disappearing.
Agree. Trying to trade the Ukraine-invasion triggered swings is not a great idea for most investors. Focus on what stocks care about – corporate profit outlook over the coming year.
There is a lot of discussion about margin compression these days simply because profits are so high and the idea that inceasing labour costs might not get passed on, thereby compressing margins. It is useful to recall that margins only really contract in recessions, so if one has this margin compression view they are actually saying that they see recession coming. That may or may not happen, certainly the inversion of the ED strip is worried about a Fed policy mistake, but margins are unlikely to compress as long as growth holds up and so far the modest revision lower in consensus GDP forecasts does not suggest that and if you add in inflation for a nominal forecast, these are holding up if not going higher. However, I would caution none of this has much bearing on the path of equity markets in the near term which are hostage to the Fed cycle and Ukraine developments.