S&P 500 companies are citing “bearish” sentiment on earnings calls. Datatrack Research
Datatrack Research reported that there was little mention of the “slowdown” in the third quarter earnings call.
Only 11% percent of management teams noted a recession in 2020-2022, down from a peak of 42%-46%.
Mentions of inflation dropped to 55% of companies in the third quarter, down from a peak of 83% in 2022.
Our chart of the day comes from DataTrek Research, which notes that there is little mention of economic discussions on company earnings calls, indicating corporations’ sentiments about the economy at year’s end.
As deflation continues at a steady pace and the labor market shows signs of softening, corporate America is feeling a little less upbeat about the path of the economy.
In a note on Monday, Datatrack highlighted that the number of S&P 500 companies that mention “recession” on earnings calls has been falling for the year and hit 11% in the third quarter. Although this is at the upper end of the 3%-11% band seen from 2013-2019, it is well below the recent peak of 42%-46% in 2020 and 2022.
Additionally, Datatrack co-founders Nicholas Colas and Jessica Rabe also noted that the number of S&P 500 companies mentioning “inflation” dropped to 55% last quarter, down from a peak of 83% in 2022. is below.
In Datatrack’s view, “To be more precise, more than half of all S&P companies still see inflationary pressures in their cost structures and this is drawing attention from Wall Street analysts and investors.”
Taken together, “recession” and “inflation” point to an easing, but uneasiness still remains among companies.
“Inflation may be yesterday’s news in the capital markets, but not in the board room,” Colas and Rabe said. “Shares have shrugged off recession fears, but at many companies they remain elevated. This is a recipe for further cost cutting, and we expect unemployment to rise in the coming months as a result.”
But they also note that the still-high mentions of inflation and recession don’t bode poorly for stock performance.
“Management knows the name of the game next year will be margin management, not mindless revenue maximization. As long as the U.S. economy continues to grow next year, it will allow companies to meet Wall Street analysts’ earnings estimates next year. Or should be allowed to go beyond that. 2 quarters.”
Meanwhile, Bloomberg recently reported that history shows that economic optimism tends to peak just before a recession. According to Bloomberg, the number of news articles mentioning “soft landing” has increased since before the last recession, adding that such an increase in mentions is not being seen currently.
Wall Street’s majors have a mixed outlook for next year’s economy. Goldman Sachs maintained a 15% chance of a recession, while JPMorgan strategists said a recession seemed inevitable.
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