The Weekly Brief
13-05-2024
Thought of the week
While resilient US growth has been giving bond markets a headache, it is helping corporate earnings. Coming into 2024, a key risk facing equity markets was that a cooling economy would challenge firms’ pricing power and squeeze historically high profit margins. Instead, the combination of stronger-than-expected economic growth and easing labour market pressures means that corporates have been able to defend margins. This has been evident in the first quarter’s earnings season, which has generally seen more positive surprises on earnings than revenue releases. This trend could continue as survey data shows a divergence between firms’ plans to increase prices vs. their plans to increase workers’ salaries. Continued pricing power means that while equity markets would cheer central bank cuts, for the moment they don’t necessarily need them.
Resilient US growth is supporting profit margins
US NFIB survey, % of respondents
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