In a detailed report by Farah Elbahrawy for Bloomberg News, it’s highlighted that investors and corporations are increasingly concerned about the Middle East conflict’s impact on earnings, with boycotts affecting sales and disruptions in Red Sea shipping posing significant risks. Bloomberg claims that this situation threatens the ongoing rally in US stocks, with references to the Red Sea and “geopolitics” in earnings calls nearing the total count of the previous three months.
Bloomberg’s analysis further reveals that expectations for S&P 500 companies’ profits over the next 12 months are soaring, reaching record highs. This optimism is based on a scenario where the US economy exceeds expectations, coupled with potential Federal Reserve rate cuts. However, Bloomberg notes that any significant threat to earnings or signs of returning inflation could jeopardize the rally that has pushed the US benchmark to record highs.
According to Bloomberg, the Israel-Hamas conflict has partly driven crude prices up this year, with fears of the conflict widening. Container ships are now rerouting to avoid the Red Sea and Suez Canal following attacks by Iran-backed Houthi rebels, aiming to disrupt Israel’s logistics and supply chains, as reported by Bloomberg.
Nicole Kornitzer, in her conversation with Bloomberg, expressed that the geopolitical backdrop poses a risk that could impact corporate margins and be inflationary, especially if the situation prolongs. Bloomberg’s coverage includes insights from Bank of America Corp.’s latest fund manager survey, which shows investors ranking geopolitics as the second biggest risk to share prices, right after inflation.
European companies like Heineken NV and Adidas AG have also voiced concerns to Bloomberg about the geopolitical and macroeconomic developments impacting their business, with Adidas AG specifically pointing to tensions in the Red Sea leading to higher supply costs in the short term.
Bloomberg reports on several US firms adjusting to these challenges, including Tesla Inc., which announced production suspensions at its German plant due to supply disruptions. Companies like ResMed Inc., Cisco Systems Inc., and Albemarle Corp. are facing increased shipping rates and extended lead times, highlighting the widespread impact of the conflict.
However, as per Bloomberg’s findings, some firms have found a silver lining amidst the turmoil. Dutch firm Royal Vopak NV and A.P. Moller-Maersk A/S experienced a rise in demand for their services due to the disruption in the Red Sea, although Maersk anticipates a return to industry gloom later in the year as the conflict’s immediate effects diminish.
The consumer backlash against major US brands in the Middle East and Muslim-majority countries, driven by dissatisfaction with the US and Europe’s response to the Gaza offensive, has also been documented by Bloomberg. This has apparently affected the earnings of companies like McDonald’s Corp. and Starbucks Corp., with Snap Inc. acknowledging the conflict as a business headwind.
