Interesting Bloomberg article this afternoon on corporate profits and raw cost inputs:
"Inflation is eliminating the rewards of owning U.S. stocks.
Surging commodity prices have eroded earnings and spurred the Federal Reserve to consider raising borrowing costs just as equities are trading at their most expensive in four years. Standard & Poor’s 500 Index shares yield 0.22 percentage point more in profits than the interest on 10-year Treasury notes, the smallest advantage since 2004, data compiled by Bloomberg show. The last time corporate earnings returned less versus bonds, the index posted its first quarterly decline in more than a year.
The 44 percent advance in oil, 72 percent jump in corn and 41 percent climb in rice pushed the UBS Bloomberg Constant Maturity Commodity Index to a record this year. That’s squeezing profits as raw-material costs outpace consumer prices by the largest margin since the 1970s. Companies in the S&P 500 will earn 7.7 percent less in the second quarter than a year ago, according to analysts’ estimates compiled by Bloomberg."
We know inflation has been significant — how much is this going to matter in the coming days months and quarters?
What say ye?
Stocks in U.S. Show Negative Return on Inflation Gain
Michael Tsang and Alexis Xydias
Bloomberg, June 16 2008