Today in the podcast, we tackle hot topics the most interesting things that crossed our desk last week. Three big things you need to know: First, some US equity investors have been frustrated that the stock market seems to be ignoring an upcoming recession, but it’s happened once before. Second, we are looking forward to an earnings season dominated by new hot topics, as the discussion about inflation and its underlying sources has begun to fade in company commentary. Third, a few other things that jumped out from our high frequency indicators last week are all more tactical in nature - elevated Nasdaq futures positioning, stabilization in Banks, better earnings revisions trends for Growth than Value, and the weakening rotation into non-US equities.
If you’d like to hear more, here’s another five minutes. While you’re waiting a quick reminder that you can listen to this podcast on Apple and Spotify.
Now, the details.
Starting with Takeaway #1: Stocks Have Ignored A Recession Once Before
in a recession at its October:
recession. Over the summer of:
And Small/Large relative returns moved back to levels that were consistent with a drop in ISM manufacturing into deep, contractionary territory.
red to ignore a recession –:
Moving on to Takeaway #2: The Inflation Discussion Has Faded In Company Commentary
With 1Q23 reporting season getting underway, we’ve updated a number of the charts that we’ve been tracking, highlighting trends in commentary on hot topics in transcripts for S&P 500 companies. The big things that jump out to us is that commentary levels appear to have peaked and are in the process of declining for all of the inflation-related topics we’ve been watching including inflation itself,
supply chains,
and pricing.
Interestingly, commentary on recession,
Uncertainty,
and layoffs also appears to have peaked. This echoes what we saw in the Duke CFO survey a few weeks ago, which suggested that C suite confidence was starting to improve prior to recent banking events.
We’re excited about the idea of companies focusing on new issues this year. Beyond the secondary impacts of recent events in banking, it remains to be seen exactly what these new hot topics will be. We’ve read through all of the early S&P 500 reporters from the past few weeks. Outlooks seem to be baking in some conservatism on interest rates and the consumer. While higher uncertainty has been acknowledged, the tone hasn’t been alarmist.
Direct impacts from the banking crisis continue to be described as minimal with banks’ regulation and impacts on lending in focus (on the latter, topic, we found it comforting that one big bellwether bank indicated they would not tighten unreasonably due to recent events).
Commentary on inflation, supply chains, and pricing has highlighted where pressures are moderating, trends are improving, and strategies are flexible.
Softness in consumers/demand has been acknowledged by some, while others emphasize resiliency.
Wrapping up with Takeaway #3: What Else Jumps Out From Our High Frequency Indicators – it’s all fairly tactical in nature.
Nasdaq futures positioning among asset managers isn’t back to peak yet but is getting close. When it does, it may signal a short-term peak in stocks broadly as was the case last August.
Banks continue to stabilize, a positive for the broader market. This reflects increasing confidence the recent banking crisis will likely end being a contained implosion like Worldcom or LTCM.
Earnings revisions trends have been stronger for Growth than Value recently, but this may change if Banks results remain strong and firmer oil prices boost Energy revisions.
Flows to foreign equity funds have faltered, the US no longer looks highly overvalued vs. Europe, and futures positioning by asset managers in EM equities has stalled suggesting the rotation out of US equities into non-US equities has lost steam and fundamental justification.
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
