Good news hurts earnings…

Most supply chain issues have now been resolved. That’s good news in the fight against inflation — shipping costs and input prices are declining. But there’s a downside. Many goods were ordered based on outdated delivery timelines or meant for prior seasons. As a result, much of that inventory arrived too late or in excess.

Retailers are now carrying too much inventory — especially out-of-season stock. The consequence? Heavy discounting, softer earnings, and a slowdown in reorders. This, in turn, is temporarily slowing down manufacturing activity.

Despite this near-term disruption, we remain optimistic.

Over the last few years, corporations have adapted to four major challenges:

1. Large corporate tax cuts
2. A significant recession
3. The COVID-19 pandemic
4. Global supply chain dislocations

Any one of these events has historically triggered corporate restructuring and market expansion. When all four occur in close succession — and are followed by renewed investment in technology and efficiency — the stage is often set for a powerful bull market.

We believe that’s the setup we’re now seeing.

Katz Family Financial