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New York
Act Daily News
—
Recession alarm bells are sounding. But are they untimely?
Yes, retail gross sales tumbled in December as inflation took its toll on customers. The manufacturing sector is contracting. And a number of distinguished CEOs are speaking concerning the elevated probability of a downturn throughout latest quarterly earnings convention calls.
But the United States economic system nonetheless appears to be chugging alongside simply fantastic after experiencing a hiccup within the first half of 2022.
We’ll know extra on Thursday, when the US Bureau of Economic Analysis supplies its first estimate of gross home product (GDP) for the fourth quarter. GDP is essentially the most complete snapshot of financial exercise, together with shopper, business and authorities spending figures.
In final yr’s third quarter, the economic system grew at an annualized charge of three.2% following two quarters of declines within the first half of the yr. So how did the economic system do in final three months of 2022?
Despite worries about weaker shopper spending through the holidays, economists are forecasting strong progress for the fourth quarter. According to Refinitiv, economists surveyed by Reuters are predicting that the economic system grew at an annualized charge of two.6%.
That may wind up being a lowball projection. The intently watched GDPNow mannequin from the Federal Reserve Bank of Atlanta estimates that GDP elevated at a 3.5% clip within the fourth quarter.
Whichever estimate is closest, progress of round 3% for the second consecutive quarter is hardly one thing to sneeze at…and it definitely doesn’t sound dire. But it’s essential to keep in mind that GDP is backward trying. It supplies no insights about the place the economic system is heading.
There are rising considerations on Wall Street that the Fed’s aggressive collection of rate of interest hikes in 2022 will lastly take their toll on the economic system this yr. There is often a lag between when the Fed raises charges and modifications in shopper conduct.
The housing market has already been hit because of the Fed’s actions. Mortgage charges spiked final yr, and that damage dwelling gross sales.
Many huge firms within the tech, shopper and monetary sectors are making ready for a downturn by reducing jobs. Mass layoffs may result in an extra pullback in retail gross sales, which in flip may push inflation pressures even decrease, which the Fed clearly needs. But at what value?
“With consumer spending representing approximately 70% of GDP, weakening retail sales can play a significant role in fighting inflation, but also challenge corporations that are likely to see declining sales and earnings,” stated José Torres, senior economist at Interactive Brokers, in a report.
Still, some consultants proceed to carry out hope that the US economic system (and maybe the worldwide economic system) can keep away from a recession…or, if there may be one, it will likely be shallow fairly than deep.
The reasoning? The Fed now appears keen to do solely small charge hikes…and the market is betting the Fed will pause later this yr. What’s extra, oil costs have tumbled sharply from their peak final summer season. That’s good news for customers and companies.
One strategist additionally stated that the Fed’s seeming unwillingness to cease elevating charges too quickly is definitely a superb factor.
The Fed doesn’t need to make the error of stopping too quickly prefer it did through the Nineteen Eighties inflation disaster. When the Fed did that, the US economic system wound up having a so-called double-dip recession….a quick downturn adopted by one other extra pronounced pullback in a collection of only a few years.
“This FOMC is also loath to repeat the premature policy pivot that allows inflation to resurge, demanding even tighter monetary policy which creates a recession,” stated Katie Nixon, chief funding officer with Northern Trust Wealth Management, in a report. Nixon is forecasting a “soft landing” for the economic system.
More blue chip firms will report fourth quarter outcomes (and maybe give steerage concerning the first quarter of 2023 and past) this week. Tech titans take middle stage.
So far, the lion’s share of earnings have been from huge banks. The leaders of these monetary corporations have been cautious. Top tech executives may also have muted outlooks.
Elon Musk’s Tesla is on faucet to report earnings, and the electrical automotive big has already began to reduce costs for a lot of of its electrical autos across the globe as demand softens.
Software big Microsoft
(MSFT), which introduced layoffs final week, may even report earnings. So will chip leaders Texas Instruments
(TXN) and Intel
(INTC), in addition to IBM
(IBM).
Investors shall be in search of indicators of stability within the tumultuous tech sector. They could not like what they hear.
The so-called FAANGs was once market leaders, however all of them plunged in 2022 as a consequence of worries about slowing earnings progress and a weakening economic system, Facebook proprietor Meta Platforms, Amazon
(AMZN) and Google father or mother Alphabet
(GOOGL), have all just lately introduced job cuts as effectively.
Solid outcomes from Netflix
(NFLX) final week may present some hope that the worst may quickly be over. But in accordance with FactSet senior earnings analyst John Butters, earnings for the tech sector are anticipated to fall almost 10% within the fourth quarter in comparison with the fourth quarter of 2021.
Microsoft, IBM and Intel, that are all within the Dow, are among the many highlights on the earnings calendar. But they aren’t the one Dow elements reporting earnings this week. In reality, a dozen of the 30 Dow members will launch their newest outcomes.
Also on faucet? Verizon
(VZ), Johnson & Johnson
(JNJ), Travelers
(TRV), 3M
(MMM), Boeing
(BA), Dow
(DOW), Visa
(V), Chevron
(CVX) and American Express
(AXP).
Monday: Markets in China and Korea closed all week; earnings from Baker Hughes
(BKR), Synchrony
(SYF) and Logitech
(LOGI)
Tuesday: Europe and UK flash PMI; German shopper confidence earnings from Verizon, Johnson & Johnson, GE
(GE), Lockheed Martin
(LMT), Raytheon
(RTN), Travelers, 3M, DR Horton
(DHI), Union Pacific
(UNP), Halliburton
(HAL), Microsoft, Capital One
(COF) and Texas Instruments
Wednesday: Canada charge choice; Germany business local weather index; earnings from AT&T
(T), Boeing, Abbott Labs
(ABT), Tata
(TTM), US Bancorp
(USB), Kimberly-Clark
(KMB), Norfolk Southern
(NSC), Tesla, IBM, CSX
(CSX) and Ameriprise
(AMP)
Thursday: US This autumn GDP; US weekly jobless claims; US new dwelling gross sales; US sturdy items orders; South Korea GDP; earnings from Valero
(VLO), Comcast
(CMCSA), Archer-Daniels
(ADM), American Airlines
(AAL), Dow, Northrop-Grumman
(NOC), SAP
(SAP), Southwest
(LUV), Mastercard
(MA), Sherwin-Williams
(SHW), Tractor Supply
(TSCO), Blackstone
(BX), Alaska Air
(ALK), JetBlue
(JBLU), Intel and Visa
Friday: US private revenue and spending; US PCE inflation; US U. of Michigan shopper sentiment; US pending dwelling gross sales; China industrial income; earnings from Chevron, HCA
(HCA), American Express, LG
(LPL), Charter Communications
(CHTR) and Colgate-Palmolive
(CL)