By David Randall
NEW YORK (Reuters) – Sky-high oil prices are another barrier to US corporate earnings, and some on Wall Street fear that it could plunge stock prices into the red.
Brent crude oil has risen nearly 40% since the beginning of the year, and tight inventory, rising demand and the war in Ukraine have kept prices at their highest level since 2014, at $ 110.73 per barrel.
Big retailers Target Corp and Walmart Inc have already warned that oil prices are cutting their bottom lines. Some investors worry that the impact of oil prices may not yet be fully reflected in other companies ‘earnings analysts’ estimates and may give the stock another blow if those estimates start to fall.
“On the surface, earnings are strong, but rising energy prices are likely to start cutting margins by 2022,” said Jason Pride, chief investment officer at Private Wealth at Glenmead.
According to the S&P Dow Jones indices, the S&P 500 is down 21.1% year-over-year, the worst half of any year since 1932, as the Fed tightens monetary policy in the fight against the worst inflation in decades.
Overall, according to Ned Davis Research, every $ 10 increase in oil prices cuts 0.3% of global gross domestic product. An increase of about $ 30 in oil prices since February has shaved 1% of the global economy, LaForge estimates, this year as the United States is on the path of recession.
“There’s no way to avoid it,” said John LaForge, head of real property strategy at Wells Fargo Investment Institute. “When commodities perform well, you always find stocks stuck in the bear market because they squeeze their margins.”
Last month, Walmart said fuel costs were $ 160 million higher than expected, but Target said it was adding $ 1 billion to its forecast for transportation and freight costs for the full year. [L2N2XJ0LU]
Still, there are some signs that analysts are adding to rising fuel costs estimates. According to refintiv data, approximately 61% of second-quarter earnings results have been negative so far with corporate pre-announcements, well above the 68.7% rate of negative pre-announcements in the previous quarter. Most S&P 500 companies report second-quarter earnings after mid-July.
Overall, the S&P 500 is expected to post earnings growth of 5.4% in the second quarter, according to Refinitiv. Once energy companies take over, it drops to 2.2%. Investors are expecting oil prices to remain high. Bullish positions in oil and other commodities are the most popular business among global investors, according to a survey by BofA Global Research. According to a Reuters poll, analysts expect crude oil prices to reach $ 99.52 a barrel and an average of $ 91.59 a barrel by 2023. [/CEPOLL] According to Refinitiv data, oil prices have increased by more than $ 90 per barrel in the last 22 months, mainly between $ 40 and $ 80. Analysts at BlackRock warned that consensus earnings estimates do not reflect the possibility that energy prices will hit growth. That’s one reason “we don’t see risky asset retreat to buy declines – and we expect greater volatility ahead,” he wrote this week. Typically, high oil prices can slow the economy and ultimately reduce demand. Recession or changes in consumer spending habits. BofA Europe Commodities Technician Francisco Blanch said this time it would be less likely if Russia continued to face energy restrictions for the foreseeable future. “Even if the world goes into recession, we estimate Brent could average more than $ 75 / bbl in 2023,” he said. Garrett said investors were focused on the Fed’s aggressive response to inflation, as this year’s slump in the S&P 500 has so far reduced valuations rather than estimates. Melson, a portfolio strategist at Natixis Investment Managers Solutions. Elevated oil prices will soon cut overall earnings, eventually adding to the appeal of large technology companies that do not rely on the broader economy. “There is a real risk of margin compression and there is further downside,” he said.
(Reporting by David Randall; Editing by David Gregorio)