Latest news with #stagflation
Globe and Mail
6 hours ago
- Business
- Globe and Mail
Corporate America is well prepared for the coming storm
Headwinds from tariffs, bond yields and 'stagflation' are gathering force, but corporate America could not be in better shape to face the economic storm that may be building. Data released last week showed that U.S. pre-tax corporate profits fell US$118.1-billion, or 2.9 per cent, in the first quarter, the fastest pace since 2020, suggesting companies are feeling the pinch from tariffs even before they've properly started to bite. After-tax profits fell 3.6%. But any sense of alarm should be mitigated by the fact that profits surged US$205-billion, or 5.4 per cent, the three months before. The decline in the January-March period was simply normalization on the back of a bumper quarter. And on a year-on-year basis, profits were up more than 5 per cent. True, the next few quarters could get messy. If growth slows or inflation starts to rise, corporate margins could get squeezed, consumers may curb spending and companies could find themselves with limited pricing power. But zoom out, and the bigger picture suggests corporate America has rarely been stronger. Depending on how you slice and dice the figures, corporate profits as a share of national output or income are still extraordinarily high. In some cases, they're close to the highest on record. Consider pre-tax profits with inventory valuation and capital consumption adjustments. These fell slightly to 13.0 per cent of GDP in the first quarter of this year, on a seasonally-adjusted annual basis, but that was from a record 13.5 per cent in the September-December period. After-tax profits dipped to 12 per cent of GDP from 12.2 per cent in the final quarter of last year. Again, that was a small decline, and it leaves after-tax profits still near the all-time peak of 12.8 per cent of GDP recorded in the second quarter of 2021. The average over the past 75 years is less than 7.5 per cent of GDP. To paraphrase former British Prime Minister Harold Macmillan, corporate America has never had it so good. Which is just as well, because headwinds are gathering. One can debate how much any of the number of brewing risks will land on the real economy, but companies could certainly feel some pain if they end up facing the collective punch of tariffs, weakening consumer demand, diminishing pricing power and higher-for-longer interest rates. 'An increasingly fragmented environment means diverging trends across economies. It's an environment ... that will constrain profits at home and around the world,' says Gregory Daco, chief economist at EY-Parthenon. Tariffs and protectionism will put the squeeze on global supply chains and overall trade. It will be interesting to observe how the divergence between domestically-generated profits and earnings accrued from the rest of the world (RoW) plays out in this environment. Domestic profits account for the majority of total income, of course, but that share has exploded recently. Or looked at the other way, the share of profits from abroad has plunged. If Trump's trade war succeeds in prompting U.S. companies to bring more production back home, the 'RoW' footprint may shrink further. In the fourth quarter of 2019, just before the pandemic, domestically-generated profits were around 75 per cent of the US$2.13-trillion total, on a seasonally-adjusted annual basis, and 'RoW' profits accounted for a quarter. In the first three months of this year, domestic profits accounted for 87.5 per cent of the total, and the share of profits from abroad had halved to 12.5 per cent. Corporate profitability is being tested. The aggregate second quarter earnings growth forecast for S&P 500 companies stands at 5.5 per cent, according to LSEG I/B/E/S, down from 10.2 per cent two months ago. The 2025 calendar year earnings growth forecast has shrunk to 8.3 per cent today from 14.0 per cent at the start of the year. The challenges are mounting, but corporate America can face them from a position of strength. Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
Daily Mail
9 hours ago
- Business
- Daily Mail
JPMorgan warns stagflation threatens US stock rally
JPMorgan Chase has warned that the stock market's rally could soon come to an end as the economy is likely to enter a period of stagflation. Analysts for the world's biggest and most powerful bank have warned that stagflation - when prices rise and economic growth slows at the same time - could hit the economy this summer. Economists consider stagflation, last seen in the US in the 1970s, to be worse than a recession. Stocks have whipsawed following President Trump's 'Liberation Day' tariff announcements in April, and last month the S&P 500 posted its best results since 2023. However, stagflation would send stocks down, hitting regular Americans' 401(K)s and investments. 'Post the recent bounce, we think softer leg is in store next, which could resemble a bit of a stagflationary episode,' JPMorgan said in a research note on Monday. The ongoing uncertainty of the US's trade relations with its biggest partners will also keep stocks in check, the strategists wrote. The 'current tariffs picture is worse than most thought at the start of the year,' they added. Despite the recent rally the S&P 500 is only up 0.5 percent this year, underperforming European and Asian benchmarks. Last month JPMorgan's CEO Jamie Dimon warned that the threat of stagflation was probably double that of other analysts predictions , and said Americans should prepare. 'There's a chance that (we'll) have stagflation (in the US),' Dimon told Bloomberg. He said that while he was not making a certain prediction, 'we have to be prepared for something like that.' 'Global fiscal deficits are inflationary. I think the remilitarization of the world is inflationary. The restructuring of trade is inflationary,' he said during the TV interview. At the bank's annual investor day earlier in May, Dimon told industry leaders that the chances of stagflation returning are probably twice that of what others have projected. The billionaire also said that markets were showing an 'extraordinary amount of complacency' in the face of the economic threats of Trump's tariffs. Dimon said the full effect of Trump's aggressive trade policies has yet to be felt. Dimon is not alone, with a host of major economists also warning that stagflation could return. 'Directionally, it is stagflation,' Mark Zandi, chief economist at Moody's Analytics, warned back in March. 'It's higher inflation and weaker economic growth that is the result of policy - tariff policy and immigration policy.' This is not the first time Dimon has warned that the US economy is in peril in recent months.
Daily Mail
9 hours ago
- Business
- Daily Mail
America's biggest bank JPMorgan warns US at risk of a fate more terrifying than a recession
JPMorgan Chase has warned that the stock market's rally could soon come to an end as the economy is likely to enter a period of stagflation. Analysts for the world's biggest and most powerful bank have warned that stagflation - when prices rise and economic growth slows at the same time - could hit the economy this summer. Economists consider stagflation, last seen in the US in the 1970s, to be worse than a recession. Stocks have whipsawed following President Trump's 'Liberation Day' tariff announcements in April, and last month the S&P 500 posted its best results since 2023. However, stagflation would send stocks down, hitting regular Americans' 401(K)s and investments. 'Post the recent bounce, we think softer leg is in store next, which could resemble a bit of a stagflationary episode,' JPMorgan said in a research note on Monday. The ongoing uncertainty of the US's trade relations with its biggest partners will also keep stocks in check, the strategists wrote. The 'current tariffs picture is worse than most thought at the start of the year,' they added. Despite the recent rally the S&P 500 is only up 0.5 percent this year, underperforming European and Asian benchmarks. Last month JPMorgan's CEO Jamie Dimon warned that the threat of stagflation was probably double that of other analysts predictions, and said Americans should prepare. 'There's a chance that (we'll) have stagflation (in the US),' Dimon told Bloomberg. He said that while he was not making a certain prediction, 'we have to be prepared for something like that.' 'Global fiscal deficits are inflationary. I think the remilitarization of the world is inflationary. The restructuring of trade is inflationary,' he said during the TV interview. At the bank's annual investor day earlier in May, Dimon told industry leaders that the chances of stagflation returning are probably twice that of what others have projected. The billionaire also said that markets were showing an 'extraordinary amount of complacency' in the face of the economic threats of Trump's tariffs. Dimon said the full effect of Trump's aggressive trade policies has yet to be felt. Dimon previously described President Trump's tariff strategy as 'pretty extreme' Dimon is not alone, with a host of major economists also warning that stagflation could return. 'Directionally, it is stagflation,' Mark Zandi, chief economist at Moody's Analytics, warned back in March. 'It's higher inflation and weaker economic growth that is the result of policy - tariff policy and immigration policy.' This is not the first time Dimon has warned that the US economy is in peril in recent months. In April the banker predicted that the economy was likely headed towards a recession. 'Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth,' Dimon told investors.
Bloomberg
15 hours ago
- Business
- Bloomberg
JPMorgan Strategists Warn US Stock Rally at Risk From Stagflation
Higher prices and weaker US economic growth over the summer are likely to threaten the S&P 500's rally, according to JPMorgan Chase & Co. strategists. 'Post the recent bounce, we think softer leg is in store next, which could resemble a bit of a stagflationary episode,' the team led by Mislav Matejka wrote in a research note.
The Star
a day ago
- Business
- The Star
Trump turmoil roils Wall Street macro trading
New York: For anyone on Wall Street still clinging to a time-honoured macro-investing playbook, Trump 2.0 has been a source of endless punishment. Market narratives keep shifting faster than traders can adjust positions. Tariffs are on, tariffs are off – then they're on again. One minute it's 'Sell America', the next 'buy the dip'. Old-school fiscal anxieties land, just as Nvidia Corp sells a vision of AI-driven productivity nirvana. To cap it off, President Donald Trump's unpredictability – trade, foreign relations, taxes and so on – is making life brutal for institutional pros paid to predict the market cycle. And the numbers show it: macro hedge funds are off to their worst start to a year in at least two decades. That confusion was on full display last week. As the US commander-in-chief fumed over the 'Trump Always Chickens Out' jab, and again as a legal ruling threatened his signature tariff weapon, some on Wall Street braced for retaliation. Yet in the end – buoyed by signs of still-solid corporate earnings and bets on economic resilience – Trump's combative posture failed to scare off risk-loving investors. The S&P 500 closed up almost 2% last week, notching a 6% gain overall in May, its best monthly performance since late 2023. High-yield bonds also climbed in May, with an index posting its highest return in 10 months. Difficult dimension 'Macro trading, which has never been easy, has just taken on a whole other difficult dimension,' said Priya Misra, portfolio manager at JP Morgan Asset Management. 'You can still position for a macro trend but you have to absolutely prevent getting whipsawed.' Nothing last week inspires much confidence that the rally is built to last. Traders still see the economy sputtering enough to warrant two US Federal Reserve rate cuts this year, while the inflation risk from tariffs remains as uncertain as ever. At the same time, policy flip-flops, data head-fakes, and the White House's reactive posture have made macro forecasting a bitter exercise. In just six months since Trump's re-election, markets have priced in everything from an economic boom and resurgent inflation to outright recession. These fast-moving narratives are confounding the macro set, including trend-following quants, futures speculators and managers trying to stay ahead of shifting data. The HFRX Macro/CTA Index is down 4.3% this year through last Wednesday, the worst start since at least 2004. 'It's been very hard to filter the noise and get to the signal,' said James Athey, a portfolio manager at Marlborough Investment Management Ltd. 'Many systematic strategies have probably struggled, forced to de risk into falling markets, only to find they had low net and gross risk levels when the market turned so they missed the recovery.' May will go down as a stretch when defensive strategies adopted in the April chaos backfired with rare force. Pain hit value stocks, bearish options, fixed-income havens, trades tied to stagflation – in short, anything premised on the idea that April's volatility would linger or worsen. US Treasuries fell as traders questioned the sustainability of US debt. An exchange traded fund (ETF) tracking long-dated bonds trailed the S&P 500 by the most since 2022. Searching for safety Playing it safe in equities proved costly, too. Defensive shares lagged their cyclical counterparts by 10 percentage points, the second-widest gap since the start of the 2009 bull run. Betting on stagflation-like outcomes – slowing growth and strong inflation – misfired. A Goldman Sachs Group Inc stock basket wagering that scenario tumbled for the worst month in two decades. Prudent defensiveness quickly turned into a liability. Two of the largest ETFs linked to the Cboe Volatility Index, or VIX, each slumped at least 25%, a moment of reckoning for those who have piled into these protective funds this year. Meanwhile, popular buffer funds such as the FT Vest Laddered Buffer ETF – a darling trade of this year that limits downside risk while capping the upside – underperformed. So did derivative-powered ETFs like the JPMorgan Equity Premium Income ETF – strategies favoured by income-seeking investors that attracted billions this year. Amid the twists and turns, retail investors who stayed the course are having a moment of quiet vindication. After a record pace of dip buying in April, US$10bil has since flooded the Vanguard S&P 500 ETF, a favoured destination of retail money. For many investors, the best strategy has been to do nothing, rather than venture into the almost impossible task of figuring out the next Trump turn. Since election day, the S&P 500 is up 2% overall – masking how vicious the whiplash has been, with stocks sinking to the brink of a bear market before a powerful comeback. Another way to frame the market-timing challenge: If you missed the worst five days, you're up over 20% now. If you missed the best five, you're down 16%. To Ed Al-Hussainy, a rates strategist at Columbia Threadneedle, the mistake traders keep making is underestimating the economy's natural resilience. Amid the turbulence, his team is pulling back from aggressive positions. 'There's a great quote that I think comes from the army: 'slow is smooth, and smooth is fast',' he said. 'They use it to train military recruits. Applies to macro traders as well.' — Bloomberg
