America’s Recession Obsession

America’s Recession Obsession

The financial pages were a veritable compendium of doom on Thursday, as US equities careened deeper into bear market territory amid an escalating recession panic. For a fleeting moment late Wednesday, markets looked poised for a relief rally predicated on the notion the Fed is finally serious about fighting inflation and, against the odds, might succeed without triggering a deep recession. Or at least that was one narrative. Another story said equities and bonds alike were pleased Jerome Powell
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4 thoughts on “America’s Recession Obsession

  1. I haven’t yet seen an insightful analysis of what S&P 500 earnings could be in a stagflation/recession scenario. As of December 2019, the S&P 500 TTM earnings were just under $140 and at all time record highs. After an initial hit in the early pandemic, subsequent TTM earnings grew dramatically to just under $198 as of 4Q21. As of June 2022, it appears the most recent forward earnings forecast was almost $240. How much of these increases were simply a result of temporary pandemic stimulus?

    Even in their recession scenarios, analysts are projected downside earnings significantly higher than the pre-pandemic record level of $140. With a strong dollar, inflated corporate costs, these earning forecasts seem significantly overly optimistic to me.

    1. I’ve mentioned this before. My first cut suggests 2023 consensus EBIT for the SP500 is at least 18% too high.

      That’s a revert to 2019 growth and margins scenario, which is not terribly bearish, in my opinion. 2019 was a pretty decent year, kind of late cycle but downturn hadn’t emerged yet. Be more bearish, and the cut looks bigger.

      However, I haven’t done or seen an explicit stagflation scenario. The 1970s were so long ago, I don’t know that we really know how today’s companies, industries, sectors will respond. For ex, back then the big consumer brands were thought to have pricing power (Gillette, P&G, etc) but today there are so many store brands and Amazon Basics and consumers are less wedded to “Tide” or “Charmin”, that I’m not sure the pricing power is still there. Needs a lot more thought than I, at least, have been able to devote.

  2. Giving credence to analyst’s or politicians projections about company earnings and profits and market projections and now recessions?
    Eventually, with enough predictions, you will be right some of the time.
    But weeding out the wrong ones, well….!
    And those PhDs/economist/experts at the Fed who called inflation transitory? But will now, belatedly, get inflation under control? And engineer a soft landing? Pinch me, I must be dreaming!

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