“There’s still enough fuel in the tank.”

Can companies increase their profits and margins further? This is the question that will move stock markets after the idea of ​​lowering interest rates is no longer valid. There is still enough “fuel in the tank” for further earnings growth, says Craig Burrell, global macro strategist at US asset manager Loomis Sales. For him, a widespread economic downturn is beyond our reach. Credit Analyst Diffusion Indices (CANDIs), a research tool owned by Natixis’ Loomis Sales, showed that U.S. companies are increasingly better off.

Borrell: “In our March 2024 survey, credit and crisis indicators swapped places compared to the first half of last year, indicating a lower tolerance for systemic risk and a more optimistic credit outlook. We believe this reversal is primarily driven by the recovery in large corporate earnings.

However, the asymmetric dynamics between the services sector and the manufacturing sector are once again becoming evident. For service companies, which represent a larger share of the US economy than manufacturing companies, costs remain high. But in the manufacturing sector, costs are reduced significantly. We expect the upcoming ISM Manufacturing PMIs to remain above 50, indicating expansion.

In our view, profit margin trends are one of the strongest indicators of a company’s health. Margins in the manufacturing and services sectors left the lowest levels reached in June 2023.

CANDIs show that pricing power has increased slightly across all industries over the past six months. However, it is still below the key level of 50, which leads us to believe that inflation will tend to decline. This would pave the way for the Federal Reserve to start cutting interest rates later this year.

Craig Burrell, global macro strategist at US asset management firm Loomis Sayles (part of Natixis Investment Managers)

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