If a company experiences higher costs, what are the options? Try to cut costs? Raise prices? Absorb it so margins are less? There never is a perfect answer but it generally all the above. When prices rise, inflation is a concern.
In an article by David Randall of Reuters, during the end of April earnings season many companies have mentioned inflation and the effect of it on the recent earnings calls, according to Bank of America Merrill Lynch. Saira Malik, chief investment officer of Nuveen’s global equity division, said short term, the struggle will be to reopen. However as demand comes back faster than expected it is leading to logistical and supply-chain issues.
At the moment, equity investors do not appear to overly nervous about the prospects of inflation, with expectations it will be transitory rather than persistent. Consumer prices rose 0.6% in March, while over the past 12 months inflation is up 2.6%.
Federal Reserve Chairman Jerome Powell expects inflation to be in the 2% for several quarters and then falling as the labor market and supply chains readjust to economic recovery.
Frank Rybinski, chief macro strategist at Aegon Asset Management noted as long as the higher input costs are moderate and not excessive for a long period of time, it is not a bad thing.
Companies in the S&P 500 are expected to report a total profit margin of 12.3%, the highest of any first quarter since 2006, according to data from S&P Dow Jones Indices.
Linking to dividend paying stocks, there are always some things you know and some things that need to be confirmed by the market. Is the Federal Reserve Chair correct? why would there be an adjustment? maybe he is wrong? when you invest in the dividend the price of the security will fluctuate, but the overall value over the long term is the reason why you invest. If inflation jumps to over 3% and bonds give you a 5% plus return, it is an easier decision to move money, but when rates are low, what are the alternatives?
There are more questions than answers, till the next time – to raising questions.