Surge in Corporate Profits Likely to Follow Raw Material Price Increases

New York, NY, April 12, 2021-As prices for raw materials surge, corporate profits are likely to follow, reports the Wall Street Journal.

“If history repeats, that will be a boon to corporate bottom lines and investors as well.

“Rising material costs usually foreshadow fatter profit margins, according to Jonathan Golub, chief U.S. equity strategist at Credit Suisse Group.

“Higher input costs generally accompany broad economic growth, which allows companies to pass along added expenses through higher prices of their own. Also, fixed expenses, like factory equipment, can be spread over greater sales.

“Mr. Golub tracked operating margins among companies included in the S&P 500 stock index and found rises and declines that mirror earlier moves in materials prices, for which he used an index of commodities that includes zinc, rubber, steel scrap and burlap.

“Lately it has been hard to find a commodity not rising in price. Wheat, copper, wood pulp, crude oil and corn have all rebounded from the depths of last spring’s economic lockdowns.

“Lumber prices have sailed more than 75% higher than the pre-pandemic record. High wood prices along with rising copper and crude oil bode especially well for corporate earnings, Mr. Golub said.”

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