Category Archives: Corporate revenues

8/2/20: Price-to-Sales Ratio Hits an All-Time High for S&P500


Stock are not overvalued, folks. Because, you know, stocks valuations are no longer making any sense...

Via @HondoTomasz, comes this nice chart, plotting the 18-year high in S&P500 PE ratios (gamable) and the all-time highs in Price-to-Sales ratio (less gamable). Do remember, folks, sales are a positive function of inflation and inflation has been pretty weak, of late. Which means that sales are facing two headwinds at the same time: low inflation pressures and low demand growth pressures. Yet, share prices are just keep climbing up in this new economic paradigm that looks like the old Dot.Com paradigm.

31/7/19: Fed rate cut won’t move the needle on ‘Losing Globally’ Trade Wars impacts


Dear investors, welcome to the Trump Trade Wars, where 'winning bigly' is really about 'losing globally':

As the chart above, via FactSet, indicates, companies in the S&P500 with global trading exposures are carrying the hefty cost of the Trump wars. In 2Q 2019, expected earnings for those S&P500 firms with more than 50% revenues exposure to global (ex-US markets) are expected to fall a massive 13.6 percent. Revenue declines for these companies are forecast at 2.4%.

This is hardly surprising. U.S. companies trading abroad are facing the following headwinds:

  1. Trump tariffs on inputs into production are resulting in slower deflation in imports costs by the U.S. producers than for other economies (as indicated by this evidence: https://trueeconomics.blogspot.com/2019/07/22719-what-import-price-indices-do-not.html).
  2. At the same time, countries' retaliatory measures against the U.S. exporters are hurting U.S. exports (U.S. exports are down 2.7 percent in June).
  3. U.S. dollar is up against major currencies, further reducing exporters' room for price adjustments.
Three sectors are driving S&P500 earnings and revenues divergence for globally-trading companies:
  • Industrials,
  • Information Technology,
  • Materials, and 
  • Energy.
What is harder to price in, yet is probably material to these trends, is the adverse reputational / demand effects of the Trump Administration policies on the ability of American companies to market their goods and services abroad. The Fed rate cut today is a bit of plaster on the gaping wound inflicted onto U.S. internationally exporting companies by the Trump Trade Wars. If the likes of ECB, BoJ and PBOC counter this move with their own easing of monetary conditions, the trend toward continued concentration of the U.S. corporate earnings and revenues in the U.S. domestic markets will persist.