Q1 earnings season has revealed a troubling trend: profit margin compression. While top-line revenue remains resilient, bottom-line earnings are being eroded by sticky wage inflation (running at 4.5%) and higher input costs.
Consumer Discretionary giants like Target and Home Depot have cut full-year guidance, citing 'consumer fatigue' and 'shrink' (theft). The narrative is shifting from 'Goldilocks' to 'Stagflation'—slowing growth with persistent inflation.
Key Metric: Operating margins for the S&P 500 ex-Energy have contracted by 120bps year-over-year.