This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Global Macro: Investors Shift Focus to Margins

NEW YORK (TheStreet) --Investors' focus may shift to profit margins as corporate earnings season ramps up.

Investors have been watching economic data closely to see if tighter monetary policy is justified. The numbers have been better than expected, which has helped boost stocks.

On Wednesday, the Federal Reserve released minutes from its December meeting stating that policymakers intended on further reining in stimulus while keeping short term rates low. As much as economic data have outperformed expectations, investors now must justify valuations through corporate results.

Less stimulus leads to more reliance on companies producing sustainable results. Borrowing costs continue to rise, which creates more demand for increased profits and a steady growth in cash flow to keep valuations elevated.

Relatively high profit margins helped companies navigate through the tough times of the financial crisis. Increased efficiency as opposed to more adding workers allowed companies to generate strong profits on weak revenue.

Now that the economy has grown out of the crisis, the labor market has steadily improved. The payrolls number on Friday missed expectations, but the winter cold shouldn't derail the underlying trend in employment.

Jobs are being created and companies aren't under as much pressure to be efficient machines to produce steady output. Improved consumer spending has led to increased revenue for products and services. This improvement showed up in the latest manufacturing and services economic numbers.

Contracting profit margins were seen in full force during the holiday shopping season. Demand was high, but companies offered discounts because of the  competition between online and physical stores. This competition will continue into the future and should weigh on corporate margins as companies aim to generate foot traffic.

The contraction of margins may be a catalyst for diminishing valuations in coming months, but that could be offset by higher revenue and consumer demand.

US Unemployment Rate ChartUS Unemployment Rate data by YCharts

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs