Inflation Takes Center Stage on S&P 500 Earnings Calls

Inflation chatter is back in force

Mentions of inflation on post-earnings calls are on track for their biggest year over year jump since mid 2022, when CPI topped 9%. Bloomberg's count of references to inflation and synonyms like cost pressure reached 691 by Oct. 30, with a projection to 1,127 for the full third quarter.

This renewed focus comes as fuel prices have climbed amid the war in Iran. Stripping out food and energy, a core gauge of consumer prices also rose faster than expected in October.

What companies are saying - and how stocks reacted

State Street Global Markets' head of equity research, Marija Veitmane, said, "Inflation is on everyone's radar again." She added that many firms are finding it harder to pass on costs, a loss of pricing power that is starting to pinch margins.

Caterpillar CFO Kyle Epley told analysts the company is "aware of potential headwinds presented by higher cost inflation" and expects fourth quarter sales growth to be "moderate" versus a year ago, and the stock fell. Consumer names looked vulnerable too. Hershey said household financial strains could weigh on spending, including at Halloween, and the shares slipped 2.1% on Thursday.

At Mondelez, CEO Dirk Van de Put said inflation was "clearly" a top concern for European consumers, while adding "the good news is that we have positive volume/mix growth," and the stock climbed almost 4% after results. Ford said profit will flatten next year as inflation threatens to chip away at gains in its pickup and SUV lineup.

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The earnings backdrop and the macro squeeze

By Oct. 30, companies accounting for roughly 61% of the S&P 500's market cap had released results, and only around 58% topped net margin estimates - one of the lowest beats rates since the fourth quarter of 2022, per Bloomberg Intelligence. Consumer oriented stocks look especially exposed as prices strain household budgets, while higher rates raise the tab on mortgages, credit cards and auto loans.

The S&P 500 has pulled back after setting a record in early October, though it remains up about 11% year-to-date. Berenberg strategist Chris Armstrong flagged the risk to sentiment if equities fall while inflation, including gasoline, stays elevated: "that could start to have an impact on confidence to a greater degree than we've seen already."

Policy signals and the portfolio takeaway

The Federal Reserve has indicated it is prepared to lift rates again to push down inflation, and interest rate swaps fully reflect a hike by the January meeting. EFG Asset Management's Daniel Murray warned of stagflation risks if oil remains elevated: "While we have not yet seen rising inflation and unemployment at the same time, there is a risk that at some point companies hit an inflection point that forces a round of mass layoffs." He said a "tipping point would be if the oil price stayed sustainably above around $125 per barrel."

The bottom line: earnings calls are leaning hard into cost pressure, profit margins are wobbling, and rate expectations are still live. If you own consumer facing names or rate sensitive corners of the market, these are the pressure points to watch.

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