As earnings season kicks into high gear, there is one major question that could determine where stocks and inflation will head from here: Will companies continue to raise prices or cut costs in an attempt to maintain the record profit margins of 2021? As this column discussed three months ago, the S&P 500 index’s
record profit margin in 2021 was a historical anomaly, topping 12% when it had never before hit 11%. Wall Street analysts at the time expected record margins to continue through this year and into 2023 and 2024, and those expectations are actually increasing. Profit margins are now expected to top 13% in 2023 and 2024, with the estimate for next year growing from 12.93% to 13.25% in the past three months.
The more companies chase those record profit margins by increasing prices, the higher inflation could go. Inflation continued to increase in June, with the consumer price index once again hitting its highest increase in more than 40 years. Don’t miss: With inflation rising and fears of recession, watch out for these 3 key numbers in company earnings reports For an idea of what this looks like in an individual earnings report, take a look at one of the first reports of the season, PepsiCo Inc.
The maker of soft drinks and snacks reported that overall sales volume increased just 1% from last year, but the company reported net revenue growth of …