The Tell: 4 things could shield stocks as Goldman warns of worst earnings season since pandemic

by | Apr 8, 2023 | Stock Market

The outlook for corporate profits during the first quarter is looking pretty gloomy. But a team of analysts at Goldman Sachs Group see hope for individual companies that could manage to buck the trend by delivering on four areas of critical importance to investors.

Analysts cut their outlook pretty aggressively as the economic outlook deteriorated during the first quarter. As a result, operating profits are expected to have shrunk by 6.8% last quarter, according to an average of Wall Street forecasts compiled by FactSet.


If this comes to pass, it would mark the worst quarterly contraction since the third quarter of 2020, when corporate profits cratered by more than 30% as COVID-19-inspired lockdowns rocked the global economy. Other equity analysts are devising strategies that could help investors protect their portfolios if a flood of dour corporate results sends U.S. stocks into a tailspin. Profit margins will be key Corporate profit margins are being squeezed by the worst bout of inflation in four decades. Last quarter, margins for S&P 500 firms retreated by 11.2% at the index level, surpassing expectations for an 11.1% drop. Because of this, companies that have a credible plan for protecting their margins should expect to be rewarded by investors, according to the Goldman team, led by David Kostin, the bank’s chief U.S. equity strategist. Related: The Fed has it wrong: Corporate greed is to blame for inflation, not rising wages, SocGen analyst says “With margins projected to contract by a greater amount than in any other quarter since the pandemic, investors will focus on which companies manage to preserve margins and by what means,” the team said. Strategies for improving pricing power, enacting cost cuts or imposing more disciplined expense-management will likely be rewarded. Are companies using AI to cut costs and improve efficiency? The rise of ChatGPT has helped make artificial intelligence one of the most closely followed investment trends of 2023, according to MarketWatch’s James Rogers. Perceived dominance in the AI space has hel …

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