3 major companies just fired a warning shot at stock market bulls
Despite investment banks such as Morgan Stanley and Credit Suisse recently cutting their U.S. equity outlooks, one would be hard-pressed to not find bulls continuing to outnumber bears on Wall Street.
Chat up any strategist on the Street and most are apt to play down the impact of the Delta variant on the U.S. economy, while playing up the potential for companies to expand profit margins further. The bulls — and again they continue to rule the roost —are also quick to point out strong corporate balance sheets and a gradual Federal Reserve tapering as favorable to equities.
“We are still overweight U.S. stocks. We think relative to other areas — other investable assets — U.S. equities are still very positive,” said BMO Wealth Management chief investment strategist Yung-Yu Ma on Yahoo Finance Live.
But Wednesday brought some news from corporate America that warrants a return to the drawing board for the bulls.
Fresh financial warnings from several well-known companies call into question ongoing pandemic challenges (such as supply chain bottlenecks, inflation and volatile consumer demand) that the bulls probably forgot about during the summer march higher in stock prices. And perhaps those bulls will be reminded of their forgetfulness in the way of a short-term pullback in stock prices.
Sherwin-Williams
On Wednesday, the paint maker doubled down on its cautious commentary about its business, offered when it reported second quarter earnings in late July. The company slashed its third-quarter sales guidance in all three of its business segments. Shares fell 2%.
The driver of the cautiousness: continuing supply chain problems that are impacting the ability of the company to meet paint demand. Sherwin-Williams (SHW) is also likely seeing some resistance by consumers to the stiff price increases it has implemented this year due to raw material price inflation.
“We continue to see strong demand across the pro architectural and industrial end markets we serve,” said Sherwin-Williams CEO John Morikis. “However, persistent and industry-wide raw material availability issues have not improved as anticipated, impacting our ability to fully meet the strong demand. Raw material availability negatively impacted consolidated sales by approximately 3.5% in our second quarter, and we previously communicated that we anticipated less of an impact in the third quarter. We are now expecting raw material availability, including the unfavorable impact of Hurricane Ida, to negatively impact our third quarter consolidated sales by a high-single digit percentage.”
The company left its full-year sales and earnings outlooks unchanged as it likely rolls the dice on its fundamentals stabilizing in the fourth quarter. That is far from certain amidst a pandemic, however — and investors are right to paint the stock red today.
PPG Industries
PPG Industries (PPG) — a major player in the industrial paint space — joined Sherwin-Williams Wednesday in…
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