U.S. inflation has been very stable for years. But now, rising wages and prices are showing signs of crushing profit margins throughout corporate America. This is making investors to punish companies with bad results.
Rewards
Investors are rewarding companies that are able to multiply sales in slow-growth U.S. economies, such as Amazon.com and Netflix Inc. However, investors now pay more attention to pre-tax margins and expenses.
According to Goldman Sachs Group, companies with higher leverage have seen share prices rise by 15%. This is also allowing revenue to have more earnings while costs are staying low.
According to data, investors are rewarding companies with stable and high gross profit margins.
Investor Focus Shift
Investors might change their focus now as the U.S. corporate tax cuts are encouraging more expenses. They also encourage 10 years of very low-interest rates. All of this is stimulating economic growth and beginning to push up wages and prices.
The Trump administration introduced large corporate tax cuts last year and increased already strong corporate profits. This helped many companies show a stronger bottom line after taxes. It also enabled companies to spend more on market share and talent, while also raising normal operating expenses.
Focus on Interest Rates
President Trump has had some very tough talk for taxes on imported goods. A potential retaliation by U.S. trade partners could also increase consumer prices even more.
