Median S&P 500 gross margins are declining
The guest argued that the median S&P 500 company is experiencing margin compression due to rising input costs and a loss of consumer pricing power, despite strong top-line index metrics.
The argument
While mega-caps like NVIDIA and Micron distort aggregate index margins upward, the gross margin of the 250th largest S&P 500 company has fallen by 150 basis points over the past 18 months. This divergence indicates that the average company is struggling to pass on costs.
The thesis, stress-tested
✓ What validates it
- ✓Median S&P 500 constituent earnings reports showing continued gross margin contraction
- ✓Aggregate index earnings growth remaining highly concentrated in a few mega-cap names
▸ Risks discussed
- ▸Commodity and oil prices declining to ease input costs
- ▸A broader economic recovery restoring consumer pricing power to average corporations
Hear it yourself
"I think a lot of investors are looking back to like the late nineties and February and trying to draw correlators between today's market and back then. What do you think of the question around whether or not the market is in a bubble or not? I don't love that phrase. You know, I think it's really hard to time when the top is. What I would tell people is, like, look. A lot of the smartest people with the best access to information and the most high powered computers are spending all day long trying to make this call. And so the idea that you're gonna sort of sell exactly at the top of your memory exposure or your semi exposure, I mean, I'm not God."
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE