Recession fears appear to be subsiding among US companies
DataTrek Research noted that third-quarter earnings calls had fewer references to a “recession.”
Only 11% of management teams reported a recession, lower than the 2020-2022 peaks of 42%-46%.
Inflation rates fell to 55% of companies in the third quarter, down from a peak of 83% in 2022.
Our chart for today comes from DataTrek Research, which notes that mentions of some economic buzzwords have declined in company earnings calls, indicating companies’ sentiments about the economy as the end of the year approaches.
With inflation continuing to decline at a steady rate and the labor market showing signs of slowing, American companies are feeling less nervous about the path of the economy.
In a note released Monday, DataTrek highlighted that the number of S&P 500 companies citing a “recession” in earnings calls has declined throughout the year and hovered at 11% in the third quarter. Although this is at the upper end of the 3%-11% range seen in 2013-2019, it is much lower than recent peaks of 42%-46% in 2020 and 2022.
Meanwhile, Nicholas Colas and Jessica Rapp, founders of DataTrek, also noted that the number of S&P 500 companies citing “inflation” fell last quarter to 55%, down from a 2022 peak of 83%.
“To put it more bluntly, more than half of S&P companies continue to see inflationary pressures in their cost structures and are drawing this to the attention of Wall Street analysts and investors,” DataTrek said.
Together, the terms “recession” and “inflation” suggest moderation, but concern remains among businesses.
“Inflation may be yesterday’s news in capital markets, but not in boardrooms,” Colas and Raab said. “Stocks have shrugged off recession fears, but remain higher in many companies. This is a recipe for further cost cutting, and we expect unemployment to increase in the coming months as a result.”
But they also note that still-elevated signals about inflation and recession don’t necessarily bode poorly for stocks.
“Managements know that the name of the game next year will be margin management, not mindless revenue maximization. As long as the US economy continues to grow next year, this should allow companies to meet or exceed Wall Street analysts’ earnings estimates over the next year. 2 Quarters ”
Meanwhile, Bloomberg recently reported that history suggests that economic optimism tends to peak just before a downturn occurs. The number of news articles referring to a “soft landing” has risen before past recessions, according to Bloomberg, which has cited such a rise in signals that we are currently seeing.
Major Wall Street firms have mixed expectations for the economy next year. Goldman Sachs maintains a 15% chance of a recession, while strategists at JPMorgan said a downturn appears inevitable.
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