May 26, 2022
Many major corporations have published poor earnings reports in recent weeks. This barrage of unfavorable news contributed to the stock market’s collapse. Tighter margins due to a significant spike in commodity prices, rising labor costs and labor shortages, chronic and worsening supply chain disruption, and, in certain cases, reduced customer demand were all contributors in the disappointing earnings reports.
Increased capital spending was another element that drained earnings. According to reports, businesses are spending in supply network design revisions, in part to diversify and increase supply chain resilience. Some researchers believe this is the start of a deglobalization movement.
Capital expenditures climbed by 20% in the first quarter of this year compared to the same period last year, according to earnings reports from the S&P500 Index’s 500 businesses. A sudden increase in investment in an environment where there is growing anxiety about the likelihood of recession is exceptional. Furthermore, while investment increased in the first quarter, actual GDP fell. As a result, it’s reasonable to conclude that noncyclical variables such as the possibility of supply chain interruption are contributing to the spike. Following the events of the past few years, firms are likely focusing on diversification to ensure future resilience.
Source: Deloitte Insights
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