November 27, 2023


Corporate America is wrapping up the year on an impressive profit note, and one of the key factors behind this success is the significant drop in commodity costs after several years of hyperinflation. The Federal Reserve’s interest rate hikes and shifting consumer preferences towards services have contributed to a shift away from purchasing goods, leading to a decrease in the costs of goods sold. As a result, companies are enjoying major cost relief, and investors are recognizing the positive implications this could have for future quarters. With deflationary forces shaping the earnings season, a better commodities backdrop is driving profit acceleration stories across various industries.

Commodity Costs: A Game-Changer for Corporate Profits:

For almost three-plus years, hyperinflation has been a major concern for businesses, impacting their bottom lines. However, the recent drop in commodity costs has brought much-needed relief to corporations. Oil prices, for instance, have plunged by 20% in the past year, resulting in cost savings throughout the supply chain. Lumber prices have also experienced a 25% decline, benefiting homebuilders and companies involved in new plant construction. Additionally, lower electricity costs have freed up funds for both consumers and businesses, allowing for increased spending and investment in value-creating goods and services.

The Impact on Corporate Earnings:

As the earnings season unfolds, investors are getting a glimpse of how the deflationary environment is positively affecting profits. For instance, Procter & Gamble’s CEO, Jon Moeller, revealed that the company is expected to save $400 million on commodity costs over the next 12 months. This shift in tone around costs has caught the attention of investors, leading to an optimistic outlook for the upcoming quarters. Top executives from other major companies, including PepsiCo, Campbell Soup, and Nucor, have also echoed the positive impact of lower commodity costs on their businesses.

Commodities Deflation: The Story of the Earnings Season:

Analysts had seemingly overlooked the impact of commodities deflation, but as more companies report positive earnings surprises, investors are catching up to the potential growth opportunities. FactSet data indicates that 80% of S&P 500 companies have reported positive EPS surprises, contributing to the market’s recent strong advance. Forward profit estimates for the fourth quarter also indicate a projected 7.5% year-over-year earnings growth, a significant acceleration compared to the third quarter’s 0.2% increase. Investors are drawn to profit acceleration stories, and the better commodities backdrop is undoubtedly playing a crucial role in driving this growth.


As the year draws to a close, Corporate America is celebrating impressive profit gains, thanks in large part to the deflationary impact on commodity costs. The Federal Reserve’s interest rate hikes and consumer preferences for services have led to decreased demand for goods, resulting in lower costs of goods sold for businesses. As more companies report positive earnings surprises and forward profit estimates project accelerated growth, investors are recognizing the significant role played by the better commodities backdrop. With deflationary forces shaping this earnings season, it’s evident that the drop in commodity costs is driving profit acceleration stories across various industries.

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