Source: Zhitong Finance Author: Xu Ran

As the stock market continues to soar for three weeks, investors weigh the possibility of a soft landing in the US economy, and the number of companies that mentioned the recession in the quarterly earnings call is declining.

The Zhitong Finance App learned that according to a report by DataTrek Research, the proportion of companies in the S&P 500 Index that mentioned a “recession” in the third-quarter earnings conference call fell to 11%, far below the peak of more than 40% last year and 2020. This shows that although investors are still concerned about whether the US economy can achieve a “soft landing,” the stock market has rebounded sharply in the past three weeks, and the company's concerns about the impending recession seem to have abated.

Nicholas Colas, co-founder of DataTrek, pointed out that despite this, the company's management's concerns about the recession have remained high over the past decade. He mentioned that in the third-quarter earnings conference call, the proportion that mentioned the word “recession” was still at the high end of 3% to 11% between 2013 and 2019.

Colas said that although the stock market seems to have moved away from concerns about the recession, such concerns within many companies remain. He expects that in order to cut costs even further, the unemployment rate may rise in the next few months.

According to a report by FactSet senior earnings analyst John Butters, the financial and industrial sector was the industry that mentioned the most “recession” in the S&P 500 index, while the real estate industry mentioned the most.

At the same time, although the US economy continues to grow in the face of low unemployment, the Chamber of Commerce's leading economic index continues to show signs of decline. Investors are closely watching the inflation situation. Although inflation has abated this year, it is still higher than the 2% target set by the Federal Reserve.

While trying to contain inflation, the Federal Reserve quickly raised interest rates in an attempt to achieve a “soft landing” for the US economy. A series of interest rate hikes, which began in early 2022, are aimed at avoiding triggering a recession.

According to a market review by the BlackRock Investment Institute, the decline in inflation is due to interest rates being raised rapidly to combat inflation, causing the US growth trend to fall below pre-COVID-19 levels. They believe that with slowing labor growth and geopolitical shocks, more similar measures are needed to maintain low levels of inflation.

According to Colas, more than half of S&P 500 index companies mentioned “inflation” in their third-quarter earnings call, although this ratio fell to 55% from 83% in 2022, still far higher than the 18% to 32% before the pandemic.

Colas said, “US companies continue to be uneasy about important macroeconomic trends. Based on the 'economic recession' and 'inflation' mentioned in the earnings call, 'it's not necessarily a bad thing for stocks'. Management knows that next year's rules of the game will be profit management rather than unknowingly maximizing revenue. As long as the US economy continues to grow next year, this should enable the company to meet or exceed Wall Street analysts' earnings expectations in the next two quarters.”

edit/lambor