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Corporate America Faces ‘Imminent’ Downturn In Revenue Growth
Determining when (or even if) US corporate profits will suffer a deeper contraction entails making some assumptions about pricing power.
One extraordinary aspect of the pandemic-era economy was consumers' willingness to absorb price increases. The C-suite had no difficulty passing on higher input costs in an environment where household balance sheets were bolstered by stimulus and government transfers. Even where the consumption impulse waned, savvy management teams pursued price-over-volume st
I took a quick look at the S&P1500 (S&P 500+400+600). Excluded the 15% of these 1500 names that have no reported inventory (financials, utilities, etc). One can doubt how meaningful “inventory” is for DAL or LLY or GOOG, but anyway they’re included in this slap-dash look.
Average 2023 invtry/sales (2022 invtry/2023E sales) is 14%, or +66% higher than the three-year average for 2017-2019 invtry/sales which is 9%. That’s simple averages, not cap-weighted.
Sectors with the most increase in I/S from 2017-2019 to 2023 are Technology (+90%), Industrials (+46%), Healthcare (+44%). Sectors with the least increase are Consumer Cyclicals (+12%), Non-Energy Materials (+16%), Energy (+19%, but probably not a meaningful metric), Consumer Non-Cyclicals (+30%).
Excess inventories is not going to trouble the mega-caps aka the new defensives. The 10 largest market-cap names either have no reported invtry (META, V, UNH), a decrease in I/S (AAPL, AMZN, TSLA), or I/S isn’t meaningful (MSFT, GOOG). The only exception there is NVDA.
…interesting and helpful, … thanks…
I broke the data down by industry sub-sector and market cap. One pattern I’m seeing is that within each industry, the increase in I/S slightly tends to be larger in mid-cap (10-50BN) and small-cap (1-10BN) than in large-cap (>50BN). It is not a strong pattern, but is discernible. Makes sense – the small guy gets stuck with the excess.
the next moment of truth will come in about 4-5 weeks with earnings reports. we’ll hear what the companies have to say. i don’t see a reason for a meaningful selloff before then. does market go much higher before then? don’t know. but i am not going to get off the train until we drop below the 50sma
The moment of truth might be ambiguous. S&P500 consensus EPS for 2023 and for 2024 has flatlined (neither falling nor rising) during the last couple months, after falling steadily since spring/summer 2022. Since 2024 estimates are still higher than 2023 estimates, the rolling S&P500 consensus EPS for “next 12 months” has started moving up, after falling steadily since summer 2023. Suppose things stay this way – no change to annual estimates but the calendar continuing to roll forward. I wonder if that will be positive or negative, after a run such as we’ve had?