We’ve spent quite a bit of time lately documenting the disconnect between consumer sentiment and investor optimism on one hand, and CEO confidence on the other.
Of course, not every measure of consumer confidence is ebullient and cumulative equity fund flows hardly suggest that everyone is all-in on the rally, even as stocks hit new highs in the US.
Still, it’s hard to ignore the yawning gap between CEO expectations (which recently dove to levels consistent with recession) and other qualitative and quantitative measures. Indeed, that gap was the focus of at least two mainstream financial media articles last month, and has been discussed at length by the sellside.
The problem, in short, is that CEOs are struggling to come to terms with trade uncertainty and election jitters. The combination of tariff angst and “Warren risk” (so to speak) is a helluva psychological burden on the C-suite, and helps to explain subdued business investment.
Relatedly, the prospect of higher input costs, higher taxes and rising wages is intimidating (to say the least) and clearly suggests that margins may have peaked. That’s especially unfortunate right now, given that Q3 marked the first quarter of declining earnings since 2016.
Nordea zooms in on this in a good week-ahead outlook piece. “Just look at the divergence between CEO expectations and equity markets”, the bank marvels. “Stunning”.
As far as the new week is concerned, the bank is placing more emphasis on ISM services than on the manufacturing gauge. “The important thing now is whether the service sector can avoid spill-overs from the recessionary manufacturing sector outlook”, Nordea writes. They’re looking for the manufacturing gauge to stabilize at weak levels “but see clear downside risks to the non-manufacturing report”.
They also note that “the market has already concluded that US PMIs will rebound materially”. In fact, on their estimates, we’re priced for ISM manufacturing to rebound to around 58. That seems far-fetched.
“By the way”, Andreas Steno Larsen and Martin Enlund casually add, “recent US survey data may have been bad enough to prompt 0% growth figures in Q4 and Q1”.
As Trump would put it, “whoever heard of such a thing?”