This Is Why It’s Going to Get Even Tougher
This Is Why Its Going to Get Even Tougher
by Wolf Richter October 23, 2015
The third quarter was tough for US corporations. Worse than the prior two quarters. They got waylaid by weak global demand and lack of pricing power. The easiest way to increase revenues and profits is to raise prices, so via inflation, but that strategy isnt working when consumers dont have the additional income to pay for higher prices.
Then theres the strong dollar. On Thursday, Draghi evoked more QE and even more negative deposit rates, which eviscerated the euro and made the dollar a heck of a lot stronger. And so many US corporations are now reporting declining revenues.
It isnt just the energy sector. For the 142 non-energy companies that have reported Q3 earnings so far, revenues dropped 3.0% year-over-year, according to Moodys Credit Markets Review and Outlook. Operating income of these non-energy companies fell 2.7%. In this environment, companies try to maintain their bottom line by cutting costs.
Results such as these weigh against expecting much of a pick-up by either hiring activity or capital expenditures, Moodys warns gloomily. Both have been dreary recently.
Cheap money is no longer readily available to riskier borrowers. In the third quarter, bond issuance by junk-rated companies plunged 38% from a year ago. Yields rose as the spread between high-yield bonds and Treasuries soared. And in October, according to S&P Capital IQs LCD, it has been even worse: just seven junk-bond deals through Thursday, for a measly total of $3.7 billion. ........................(more)
http://wolfstreet.com/2015/10/23/this-is-why-its-going-to-get-even-tougher/