What Stocks Are Most Affected by Supply Chain Shortages?

In addition to causing incredible strain on healthcare, education, and other industries, the COVID-19 pandemic has led to months of product shortages amid supply chain disruptions. Thanks to higher shipping costs, higher global product demand, trucker shortages, and other factors in play, many businesses are struggling to meet expectations.

Stock market performance and earnings have felt the impact of supply chain issues and product shortages. About 70 percent of companies in the S&P 500 that reported earnings by mid-October warned that their sales and profits would be lower due to supply chain issues. It isn't clear when these supply chain issues might end.

Griff Lynch, the executive director of the Georgia Ports Authority, told The New York Times, “The supply chain is overwhelmed and inundated. It’s not sustainable at this point

Products impacted by supply chain bottlenecks run the gamut from electronics and automobiles to medicine and household products. Since some manufacturing facilities and shipping ports have shut down or slowed down operations due to COVID-19, shipping containers have piled up.

Companies in a wide range of industries are impacted by the unpredictable nature of the supply chain at this point.

Kristina Hooper, the lead global market strategist for Invesco, said in a note that low-margin companies will be hit the hardest by rising costs due to supply chain problems. This means that stocks of companies in transportation, general retail, construction, and automobiles will struggle.

The New York Times echoed this claim and stated that companies including GM and Amazon tend to be “reluctant to pass higher costs on to consumers.” The increased costs due to shipping premiums, higher demand, and lack of materials should go to the customer, but that will impact earnings and stock performance.

Banks might achieve middle-of-the-road performance. Trading businesses might not meet last year’s numbers, but consumer divisions might improve as the economy reopens.

Brian Nick, the chief investment strategist at Nuveen, told MarketWatch that in time, along with the gradual return to the pre-COVID economy of annual growth around 2 percent, higher-growth stocks should start to perform better.

Some stocks will likely post positive earnings in spite of, or possibly because of, the prolonged supply chain tensions worldwide. Companies involved in growth stocks that largely aren't affected by supply chains might include Airbnb, DraftKings, and Activision Blizzard, according to The Motley Fool.

Higher inflation is due to the supply chain challenges since the cost of shipping containers, raw materials, and many other items has gone up. Companies operating within sectors that usually benefit from higher inflation have shown the greatest earnings in recent days.

Companies that should be impacted the least are those with wide profit margins, limited raw material costs, and small workforces.

CNBC also reported that Hooper, of Invesco, noted, “Financials may be the standouts in this environment, especially as these companies would welcome higher yields. Another differentiating factor may be how much investment companies have made in technology to increase productivity.”