This is the main conclusion from today’s morning letter, which you can read to register to receive in your inbox every morning, along with:
And just like that, everyone is a recession expert.
Two weeks ago, most self-proclaimed financial experts wouldn’t have even mentioned the word recession because it was in vogue for late 2022/early 2023.
From late July through early August, the prevailing sentiment among insiders was: 1) Nvidia (NVDA) shares were expected to rise another 50% after the August 28 earnings report; 2) the S&P 500 was expected to rise 10% by year-end; and 3) Nvidia’s stock was expected to rise 100% by 2025.
And yet here we are, with the pros scaring the living daylights out of everyone this past week about the likelihood of a recession after a “bad” jobs report on Friday. Two of Wall Street’s top banks, for example, raised their recession probabilities this week.
These professionals have voiced their concerns on TV, social media, and in research reports, but they have also taken them to global trading desks. Markets were pushed into choppy waters as crowded AI stocks like AMD (AMD) were dumped without any reference to their underlying fundamentals.
All this talk about recession feels like nonsense to me, an excuse to wake up the average investor so that institutional players could get back into high-flying names at lower prices. Everyone knows that a recession often means negative economic growth, right? Or a significant economic slowdown that lasts for quarters or even years?
So the US economy is going from 2.8% GDP growth in the second quarter and a long period of steady expansion to slightly negative growth or worse sometime in the next six months? An economy that is still creating a solid amount of jobs every month is going to start shedding jobs for the foreseeable future?
Where is the evidence to support this? What is the trigger for this? Don’t message me on X, formerly Twitter, and say it’s interest rates because the economy has done just fine during this high rate period.
Lost in recessionary BS this week was an ISM services report, with data on business activity, new orders, employment and supplier deliveries. The index clocked in at 51.4%, up from 48.8% in June.
Numbers above 50% are seen as positive for the economy. Most companies in the report said business was either flat or growing gradually.
Then, initial jobless claims totaled a seasonally adjusted 233,000 for the week — a decline of 17,000. The Street was expecting a print of about 240,000.
The earnings season has also been pretty good. Most of the big-name listed companies are beating revenue and earnings expectations with ease, and not shocking the masses with huge misses. The outlook is solid.
That’s a recession? Come on!
Now, I’m not going to sit here and blow smoke and say that everything is fine. Many households are struggling to make ends meet because of persistent inflation, something I was reminded of when I spoke to P&G (PG) CEO Jon Moeller a week ago.
I think Yahoo Finance’s Brooke DiPalma’s interview on the NYSE with Dine Brands (DIN) CEO John Peyton was also illuminating on this front.
“It’s a value war. It’s a fight for a share of the wallet. … At a time when our audience is eating out less, we need to make sure that when they do choose to eat out, IHOP or Applebee’s or Fuzzy’s is their first choice,” Peyton said.
The same goes for DiPalma’s exclusive interview with Molson Coors (TAP) CEO Gavin Hattersley.
“Consumers [are] making different choices in pack sizes,” Hattersley said. He said this behavior has been going on “for a while” and “has been pretty consistent through Q2.”
Conversations I had with top executives over the past week shed further light on these macro challenges.
Disney (DIS) CFO Hugh Johnston told me that demand for its theme parks slowed in the last few weeks of the quarter. The company expects that slowdown to continue for the next few quarters.
“We’re definitely seeing consumers behaving in a way — I wouldn’t necessarily call it recessionary — they’re watching their pennies a little bit more,” Johnston said. Lost in the sauce, however, was a strong quarter for Disney’s streaming business. In a recession, people tend to cut unnecessary spending.
Ralph Lauren (RL) CEO Patrice Louvet told me this (video above) when I asked him if the consumer is behaving in a recessionary manner: “I think it’s pretty clear everywhere you look that the overall consumer is under pressure from the cumulative effect of inflationary pressures and interest rates. In terms of our core consumer, we actually find them to be quite resilient.”
The company continued to see sales growth in its North American stores.
All in all, you don’t get the feeling that the economy has already jumped over a cliff and is crashing to the ground. As a result, it’s hard to justify some of the heavy down days we’ve seen in the markets this week.
What appears to be happening is a gradual cooling of the economy that could prove short-lived, especially if the Fed cuts rates, as Cognizant (CTSH) CEO Ravi Kumar told me this week on my Opening Bid podcast.
Labor market developments of late appear “more consistent with post-reopening normalization and gradual declines in interest rates than with any current shock or accelerating weakness, but the risk is there,” Peter Williams, strategist at 22V Research, said in a note this week.
I think that’s a fair assessment. What’s not fair is all this talk about recession hysteria.
Three times a week I have insightful conversations with the biggest names in business and the markets on my Opening bid podcast. Find more episodes on our video hub. Pay attention to your preferred streaming service. Or listen and subscribe to Apple Podcasts, Spotifyor wherever you find your favorite podcasts.
In the episode of Opening Bid below, Judy Shelton, Trump’s former Federal Reserve nominee, explains why the Fed should target 0% inflation.
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