Geopolitics More Worrisome Than Labor Costs
Results of a JPMorgan study of 25,000 transcripts of corporate earnings calls and other public meetings.
Geopolitical concerns have reached the highest level in five years, while concerns about higher wages may be diminishing, according to a JPMorgan Chase & Co. study.
JPMorgan strategists including Dubravko Lakos-Bujas analyzed more than 25,000 recent earnings transcripts, conference calls, and question-and-answer sessions for S&P 500 Index companies. Banks and energy, technology, and transportation companies increased references to geopolitics, while banks talked about the global economic growth outlook and reduced client activity.
“Contrary to popular investor narrative, fewer S&P 500 companies are highlighting rising wages as a risk,” the JPMorgan authors said in the report dated March 3. Sectors that tend to employ more skilled workers were less concerned about labor costs, while labor-intensive industries see issues arising from a tightening market.
Personnel costs aside, strategists have been divided on what earnings are going to do this year, given trade tensions and a less robust global economy. Morgan Stanley’s Mike Wilson has declared that there’s already an earnings recession, while Goldman Sachs Group Inc.’s David Kostin and Credit Suisse Group AG’s Jonathan Golub said an outsized drag from a few firms threatens to obscure good news in other places. BMO Capital Markets’ Brian Belski said fears about weakness are “ overblown.”
JPMorgan is in the latter camp, reiterating a target of 3,000 for the S&P 500. The gauge closed Friday at 2,803.69.
Discussion of the U.S. dollar increased among companies in the industrial, materials, staples, and technology sectors, the report said. Autos expected further currency headwinds in 2019; technology hardware and equipment companies in particular flagged issues in emerging markets.
And even though the U.S.-China trade dispute continues, it appears to be less of a wild card now in some areas. Technology hardware, retail, and auto companies discussed the issue more, while areas including materials and consumer durables saw a drop in mentions. Investors are likely “now better versed on this risk,” JPMorgan said.
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