A bull market is developing in recession expectations. In the week ahead, investors will have the chance to hear if dozens of companies share that fear.
Even armchair investors have heard the warnings from the bond market and its inverted yield. Usually, the longer the loan, the higher the interest rate. When that changes, like it has ever-so-slightly in recent weeks, conventional wisdom holds it’s a signal of a coming economic recession.
Then last week, a survey of economists by The Wall Street Journal found more of the dismal scientists were pessimistic about the economy. More than a quarter of them think a recession will happen sometime in the next 12 months. Fewer than one in five thought that just a few months ago.
Now, corporate executives will face shareholders who are jittery over rising interest rates, sky-high inflation, Russia’s war in Ukraine, the midterm election, and COVID shutdowns in China contributing to a growing economic unease.
JP Morgan added to the worries in its earnings call last week. It set aside $600 billion as a buffer against loans going bad from an economic downturn. Remember, this is the bank that built a “fortress balance sheet” and was able to weather the Great Recession better than most.
Still, corporate profits are not in a recession. Higher wages and higher inflation are pinching profit margins some, yet earnings at S&P 500 companies are forecast to increase by at least 10 percent compared to a year earlier, according to FactSet. That would mark the fifth consecutive quarter of double-digit year-over-year growth. Hardly recessionary.
“Good numbers, but bad mood,” is how Fortune framed the mindset. Despite the open-mouth efforts by Federal Reserve officials hoping to convince investors they have the fortitude to raise interest rates to starve inflation, increasingly the markets are gripped by growth worries. There is little conviction that the central bank will be able to engineer a soft landing — extinguishing inflation without ending the economic expansion.
Bank of America, Tesla and Procter and Gamble are among the dozens of companies delivering financial updates this week. Investors will be listening to them and the others to hear if they are joining the chorus of growing fear.
