Premarket Stocks: Recession fears have receded this earnings season


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Investors appear to have traded in their fleece vests for crystal balls – everyone on Wall Street seems to have a recession forecast. But lately, the screams of recession have quieted a bit, and a growing group of economists say any downturn is likely to be mild.

So, can the United States avoid a severe recession?

What’s happening: As in the third quarter As earnings season comes to an end, CEOs seem to think so. They’re not mentioning the “R” word as often as they used to: The number of S&P 500 companies mentioning the term “recession” in third-quarter earnings calls is down 26% compared to the second quarter . by FactSet data.

The past month has seen a solid earnings season and a plethora of encouraging economic data pointing to a slowdown in inflation.

According to FactSet data, about 69% of S&P 500 companies beat third-quarter earnings per share estimates and 71% of S&P 500 companies beat revenue estimates. These numbers are still below the 5-year and 10-year averages for S&P 500 companies, respectively, but they certainly aren’t indicative of an economic meltdown.

Data reports this month also point to the possibility of a Goldilocks situation, with interest rates falling while consumer spending remains relatively high. October is softer than expected CPI and Read producer price showed that inflation was declining across the board. Payroll data showed modest wage growth and retail sales remained strong.

While CEOs remain gloomy about the economic outlook, they seem to have brought that gloom to a sustainable level where the recession may no longer be a priority.

CEO mood: In June, JPMorgan CEO Jamie Dimon warned of an economic hurricane. But on Wednesday, JPMorgan economists Michael Feroli and Daniel Silver downgraded that threat. The United States will enter a “mild recession” in the second half of 2023, they said. “We are effectively looking for a Category 1 economic hurricane.”

Goldman Sachs analysts forecast now that the United States is likely to avoid a recession entirely in 2023, although growth will slow.

Those of the Conference Board October measure of CEO confidence showed a similar sentiment. While most CEOs are preparing for a recession in the next 12 to 18 months, 85% of executives expect it to be a short and shallow recession with limited global impact.

“The narrative has been refined: if we go into a recession, it won’t be deep and dramatic. Earlier this year, CEOs were worried, markets were completely disrupted and volatility was elevated due to uncertainty about the shape of a potential recession,” said Jeffrey Roach, LPL Financial’s chief economist. “The air has cleared up a bit and recession uncertainty is not as pressing an issue.”

The bottom line: It’s all about the Fed. Investors are eagerly looking for clues as to what the Federal Reserve will decide at its December meeting and whether it will begin to end its fight against inflation by easing painful rate hikes.

Reports have shown that inflation is easing, but we’ve seen just one month of slowing inflation data – not enough to convince central bank officials of a downtrend. Analysts fear that if the economy remains strong and central bankers consider whether lower inflation is really a trend, the Fed will overrevise and push the United States into an unnecessary recession.

Home sales in the United States fell for the ninth straight month in October as rising mortgage rates and high prices pushed buyers out of the market. reports my colleague Anna Bahney.

Existing home sales — which include single-family homes, townhomes, condos and co-ops — fell 28.4% year over year and 5.9% from September in October, according to a National Association of Realtors report released on Friday. All regions of the United States saw monthly and annual declines.

This continues a slowing trend that began in February and represents the longest streak of declines in sales on record, dating back to 1999.

But despite the Federal Reserve’s efforts to cool prices by raising interest rates, they remain stubbornly high. the median According to the report, the price was $379,100 in October, up 6.6% from a year ago.

However, that is down from June’s all-time high of $413,800. And while prices are rising year on year across the country, October’s increase is slower than in recent years, with annual home price increases peaking at 24% in May 2021.

Employers plan to increase their payroll budgets by 4.6% next year, the largest expected annual jump in 15 years. reports my colleague Jeanne Sahadi.

That’s according to the most recent international survey by consulting firm Willis Towers Watson, which included responses from 1,550 US employers. The survey was conducted from October 3rd to November 4th.

But don’t start celebrating just yet. With headline inflation Still at 7.7%, any raise an employee receives below that level effectively means they’re making less because their paycheck isn’t bringing in as much.

Still, the news could come as a blow to the Federal Reserve: central bankers view wage growth as a factor contributing to inflation and have sought to stem it through a series of rate hikes to cool the economy.

Employers said they will use a variety of ways to fund bigger pay increases over the next year: 21% said they would reconsider their entire compensation package to ensure it has the greatest impact on retention and engagement; 17% said they would raise prices; and 12% said they would restructure and downsize.

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