(Bloomberg) — An alarming number of companies have warned that profits won’t meet expectations when they report in a month.
The group, including PP Industries Inc. and Sherwin-Williams Co., are primarily materials producers that have struggled amid supply-chain disruptions. While just a small part of the S&P 500, their earnings have historically been the most correlated to the index’s of all sectors, a study by Bank of America Corp. found.
The profit warnings come as economic growth is slowing, price increases for final products and services are missing forecasts and wage pressure is building. Taken together, the result is a deterioration in what BofA calls the “corporate misery indicator,” another signal that worsening earnings momentum could spread into the broader market. That would rob bulls of a key reason stocks have weathered everything thrown at the market in the past 18 months — corporate America’s ability to deliver blockbuster results.
The $3 trillion market for low-rated companies’ debt is having its best year ever, powered by a rebounding economy and investors’ demand for any extra yield.
U.S. companies including Crocs Inc. CROX -2.42% and SeaWorld Entertainment Inc. SEAS -1.67% have sold more than $786 billion of junk-rated bonds and loans so far in 2021, according to S&P Global Market Intelligence’s S&P. That tops the previous high for a full year in data going back to 2008.
The record issuance marks a notable rebound from March 2020, when investors’ worries about widespread bankruptcies and defaults sent prices for low-rated debt slumping. Now, low interest rates and a stimulus-fueled economic rebound that has supported companies with weaker credit ratings have boosted the appeal of riskier debt.