![]() ![]() ET: Initial Jobless Claims, week ended Nov. ET: Durables Excluding Transportation, October preliminary (0.0% expected, -0.5% during prior month)Ĩ:30 a.m. ET: Durable Goods Orders, October preliminary (0.4% expected, 0.4% during prior month)Ĩ:30 a.m. ET: MBA Mortgage Applications, week ended Nov. ![]() Because they didn’t have the capacity to keep up with demand, companies missed out on sales opportunities.ħ:00 a.m. However, the past two years have come with persistent labor shortages as companies struggled to hire amid the rapid economic recovery. And so when demand cools, it would make sense for companies to lay off employees to lower costs as the amount of work that needs doing shrinks. Labor represents a massive cost for companies. This is a new dynamic that US equity investors haven't had to contemplate over the past 30 years when labor was much more fungible and cheap. The shortage of labor created by the lockdowns and de-globalization is reducing companies' willingness to let employees go for fear of never getting them back. In other words, the decline in the rate of change in revenue growth overwhelms the ability of companies to adjust fast enough to avoid the negative operating leverage that is driving our well-below consensus EPS forecasts for next year. That will put even more pressure on margins as the rate of change on real growth and inflation – i.e., nominal GDP – fall sharply. As we have noted, from an earnings standpoint, that may be worse because it means companies are not reducing headcounts as they typically do when revenue growth slows. … our economists are not officially forecasting a recession for next year, but they assume we barely skirt one. ![]() Wilson offered a little more color on his current view on operating leverage in a Nov. ![]() And it cuts both ways: A company with high operating leverage will see earnings fall faster as sales decline.Ĭompanies with a lot of fixed costs relative to variable costs tend to experience high operating leverage. For example, a company with 5% sales growth and 15% earnings growth has higher operating leverage than a company with 5% sales growth and 10% earnings growth. Operating leverage is the degree to which the change in revenue translates into operating earnings. equity strategist at Morgan Stanley, wrote on Monday. “t the end of the day it's typically margins that do the heavy lifting to the downside in an earnings recession, not top line growth, because of the power of negative operating leverage,” Mike Wilson, chief U.S. Revenue - aka the "top line" - doesn’t have to deteriorate by much for earnings to really suffer. Follow him on Twitter at Read this and more market news on the go with Yahoo Finance App. Today's newsletter is by Sam Ro, the author of. stocks -inflation -YahooFinance -recession -bitcoin -Biden -Stockmarket -coronavirus -memestocks -Fed -YahooFinance -investing -stockmarket -bitcoin -crypto ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |