Toppy Tuesday – Are Earnings Enough to Drive Us Higher?

Inflation is everywhere.  

As you can see from the B of A chart on the right, 13% of the conference calls have mentioned inflation as a key factor going forward and that's up 300% from last year.  Inflation has many problems for the market and one of them is uncertainty – markets don't like that.  As long as we have the certainty of the Fed backing us up, we can ignore inflation but, of course, inflation is the one key factor that is most likely to force the Fed to stop printing money – as it can quickly get out of hand.

Home prices are up over 10% since last year, despite the Recession and materials like lumber are through the roof – so don't expect that to ease up any time soon.  Core Inflation would have to persist above 2%, perhaps for several quarters, to spur policymakers to move.  With its policy shift, the Fed now also promises to aim for 2% inflation on average over a period of time, rather than using 2% as a hard annual target, as it had since 2012.

Still, as we know, the CPI is just so much BS and you can see how our CEOs see inflation as a real problem that's impacting their industries already from these earnings report comments:

These are well worth considering when making investments in 2021 – it's not just about whether or not your portfolio companies will experience inflation but whether or not they will easily be able to pass those increased costs along to their consumers.  If they can't – it's the profits that get squeezed.  Rising commodities prices are driving up costs, especially for manufacturing sectors.  At least some of this pressure from higher commodities prices then flows downstream to industries such as Autos, Capital Goods, and Building Materials.

Services Sectors, on the other hand, are more concerned with labor costs.  For Media and Entertainment, the price of talent keeps rising.  The health care-services sector has been short of skilled nurses to meet the staffing needs.  As the lodging industry starts to rebound from its deep dip,…

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