Low Borrowing Costs Cover For S&P 500’s Weak Margins

When the S&P 500 (INDEXSP:.INX) surged over the summer, most analysts took this as evidence that the U.S. economy was recovering, but historically low borrowing costs helped ROE in eight out of ten sectors, say Goldman Sachs analysts Stuart Kaiser and Amanda Sneider, covering up some of the weakness from falling margins. Analyst sentiment is becoming incredibly bullish, but as interest rates begin to rise, which most people expect to happen within the next few quarters, there will be more pressure on companies’ margins.

Borrowing costs near historical low

“Borrow costs remain near historical lows and had the broadest positive contribution to ROE, helping eight of the ten S&P 500 (INDEXSP:.INX) sectors,” write Kaiser and Sneider, referring to the...