A sudden cold snap in the US has caused natural gas prices to spike, with analysts predicting further increases in the coming weeks. The article also explores the reasons behind high profit margin expectations for the S&P 500 in 2025, including the impact of the 'magnificent seven' tech giants.
Good morning and Brr. No, not money printer goes “brr”; “brr” as in put on long johns. This week’s US cold snap has upset what had been a calm, and rather cheap, natural gas market. Gas prices were up 4 per cent at the end of last week, and futures were up by 5 per cent. Analysts say that gas prices could jump even higher over the next two weeks, especially if the cold weather disrupts supplies in Texas. Send us a nice warm email: [email protected] and [email protected].
Here’s a striking chart from John Butters of FactSet (his weekly “Earnings Insight” bulletin is always full of good stuff): S&P 500 profit margins have been high since 2021, when stimulus checks hit and post-pandemic demand was unleashed. Inflation helped, too. But the Wall Street consensus is that this year margins will surpass even the bonanza year of 2021, when margins were the highest they have been in at least 30 years. And these wider margins are a big part of the reason that the market expects double-digit earnings per share growth this year. Is this a rational expectation? It doesn’t seem that way. The economy is strong, but slowing gently. There is evidence of price pressure in some sectors (staples, for example). Expectations for big declines in interest rates, and as such lower financing costs, have been tamped down by the Fed. There is also a chance of rising labour and input costs from the incoming administration’s tariff and immigration policies — which homebuilder shares, for example, seems to be discounting already. The most common explanation for higher margin expectations in ‘25 is also the most common explanation for absolutely everything else about the American stock market: the magnificent seven. The business models of the megatech oligopolies have enormous operating leverage. As their revenue grows, profits rise faster still
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