Earnings season is heading into the final stages with retail giants Target and Walmart set to report late this week. Analysts are now sifting through the transcripts of all those earnings calls to determine the major themes for S&P 500 companies during the first quarter, and Goldman Sachs has released its quarterly Beige Book. Overall, it seems that the economy and deregulation were in focus for S&P 500 managers during the first months of Donald Trump’s presidency.
Sentiment is improving at S&P 500 companies
In their S&P 500 Beige Book report dated May 11, Goldman Sachs analyst David Kostin and team highlighted three overarching themes during first quarter earnings calls: economic growth, regulation and labor inflation. They noted that since Trump’s election in November, investors have been looking for signs indicating whether any real growth acceleration has come out of the improving consumer sentiment.
The Goldman team explained that many managers for companies in the index recognized that sentiment and growth expectations were improving. Those working in the Financials sector actually observed signs that improving sentiment was resulting in increased business activity. However, they added that some S&P 500 managers seemed optimistic about “the prospect of accelerating economic growth” although they had not yet actually seen a significant increase in activity.
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Hoping for deregulation
The first quarter earnings calls were also marked by a widespread hope for deregulation and improved clarity in regulation. However, the Goldman team found just a few companies that were able to cite specific examples in which “such a change in ideology or enforcement is already taking place.”
Among the companies that declared evidence of progress in deregulation on their earnings calls were AT&T, Boeing and Prudential Financial. Visa, Carnival and Norfolk Southern were among the companies that said they have seen little to no progress on the deregulation front.
Economy at full employment
Many S&P 500 managers also focused on rising labor costs, citing them as a headwind to their companies’ profit margins. The Goldman team notes that the U.S. labor market is at full employment, which is causing upward pressure on wages in what is now the eighth year of expansion. The Goldman team feels that Consumer Discretionary and Industries are at the most risk for rising labor costs.
Among the companies that highlighted wage inflation on their earnings calls were Union Pacific, AutoZone, Darden Restaurants, Southwest Airlines, American Airlines, Norfolk Southern, Chipotle Mexican Grill, Yum! Brands, and Mastercard. ConocoPhillips, Ecolab and HCA Healthcare were in the very small minority of companies that observed deflation or stability in wages.