The rising cost of commodities ranging from oil to food is emerging as the main threat to an earnings recovery that has helped push US stocks to their highest levels since the 2008 financial crisis. Major US companies across a spectrum of industries, from blue chip manufacturing companies 3M Co and DuPont Co, to tissues and diapers maker Kimberly-Clark Corp and fashion accessories house Coach cited rising costs as a risk to growth this year.
Concern about the effect of rising costs on profit margins prompted investors to push shares of 3M lower and barely reward an earnings report from DuPont that blew past Wall Street's expectations in Tuesday trading. To counter the higher prices they are paying for food and materials, executives at top companies such as fast-food giant McDonald's Corp are looking to raise their own selling prices this year.
That could be a risky proposition at a time when the US economy's recovery from a brutal downturn has been more evident on Wall Street than Main Street - with stocks rising while unemployment remains stubbornly high. The pinch of higher costs has not been evident in fourth quarter results reported so far - earnings growth has outpaced revenue growth, showing that margins have held up. But the outlook for 2011 is a different matter.