Corporate profits have already reached their lowest point. Following a period of decline throughout the previous year, it is anticipated that S&P 500 companies will disclose a marginal profit growth of 0.2% during the summer.
Although the statement above may appear lacking in vitality, it signifies the initial quarter of expansion within one year, as per the data provided by FactSet.
Over three consecutive quarters, there has been a decline in profits compared to the corresponding period in the previous year. This decline can be attributed to increased costs and the prevailing fragility of the global economy. The stock market’s ability to sustain its current rally is contingent upon the imperative of fostering expectations for a resurgence in economic expansion.
We Can Expect a Shift to a Bullish Scenario Soon
According to Lisa Shalett, the Chief Investment Officer at Morgan Stanley Wealth Management, the current market narrative is transitioning towards a bull case founded on the expectation of earnings re-acceleration.
However, a notable concern arises: Inflation persists at elevated levels, albeit having moderated since the apex observed last summer, and it continues to erode corporate profitability.
Multiple major airlines have recently issued cautionary statements regarding the anticipated negative impact on their profitability during the summer, primarily attributed to escalated fuel expenses.
American Airlines has revised its projected adjusted earnings per share from a previously anticipated range of 85 to 95 cents to a significantly lower degree of 20 to 30 cents.
During the third quarter, the average fuel price experienced by individuals in the United States ranged from $2.90 to $3 per gallon. The reported figure exceeds the projected range of $2.55 to $2.65.
Like drivers nationwide, the airline is experiencing adverse effects stemming from the significant increase in oil prices observed since June. The benchmark U.S. crude oil cost experienced a notable increase, surpassing the $90 mark after remaining below $70 during the earlier part of the third quarter.
It Is Not Only Fuel Prices That Are to Blame for the Companies’ Problems
Furthermore, it is essential to note that the erosion of company profits is not solely attributed to increased fuel prices. The employees are expressing their desire for increased remuneration, citing their dissatisfaction with the inability to match inflationary pressures, juxtaposed with the continued escalation of CEO remuneration.
The contract offers presented to the United Auto Workers union, which entailed a proposed pay increase of 20% over the forthcoming years, have been declined. Instead of the offer above, the association has expressed their preference for salary increments at Ford, General Motors, and Stellantis that are nearly twice the proposed percentage.
In contrast to the automotive industry’s prominent entities in Detroit, UPS, a significant delivery corporation, successfully circumvented a potential strike in the preceding month. This outcome was achieved through the endorsement of a negotiated agreement by 340,000 unionized workers, which the Teamsters Union proclaimed the most financially advantageous deal ever reached with the company above.
Upon the culmination of the contractual agreement, it is anticipated that the remuneration and benefits package for a full-time driver employed by UPS will amount to an approximate annual sum of $170,000.
According to FactSet, analysts have revised their initial projection for UPS’s earnings per share from $2.06 to $1.73 for the current quarter. If additional companies encounter comparable pressures, it is plausible that the profit decline observed in the S&P index may persist for a consecutive fourth quarter.