Saturday, September 30, 2023

The Economy is in a ‘Rolling Receipt’ that could rip through earnings

  • According to Liz Ann Sonders of Charles Schwab, the US is currently in a “rolling recessive” state.
  • Sonders stated that this could soon impact corporate earnings and pose a risk to stocks. 
  • However, if the downturn in the economy is mild and the labor markets remain strong, equities could see a rebound next fiscal year, she stated.

The economy is already in a “rolling recession” that’s starting to hurt corporate earnings – but that could set stocks up for a better 2023, according to Charles Schwab investment chief Liz Ann Sonders.

“We’re already experiencing a recession, and we’ve been discussing it in the contexts of a rolling down recession. Sonders spoke out in an interview with CNBC on Wednesday to say that there are pockets of the economic sector that are “undoubtedly” in recession territory. weakness in areas of housing.

Meanwhile, CEO confidenceAnd consumer confidenceThe Fed’s 2% target of 2% inflation has caused inflation to plummet this year, Sonders stated.

Sonders stated that a rolling recession could lead to losses in corporate earnings. This would likely affect the stock market sector-by-sector rather than crashing at once. It does not mean that stocks will be immune to the consequences. Mike Wilson, Morgan Stanley’s Chief Investment Officer, warned that the S&P 500 could bottom out early in 2023As earnings continue their deflate, and in an a recent noteSonders warned that the market would likely be held down early next year by Fed calls, or central bankers trying not to dampen enthusiasm for the stock exchange. 

“For now, a weaker stock market is necessary to tighten financial conditions and rein in excess speculative speculation. Feature Fed policy, and not a bug,“The note stated. As the Fed fights inflation, more rate hikes are expected to impact equities. Investors have priced in a further increase in interest rates. 50-basis-point rate hike to come in December.

But history suggests stocks could be in for a rebound after the Fed stops hiking rates – as long as the economy is boosted by a strong labor market, the note said, pointing to recoveries following previous Fed tightening cycles. A mild recession and a strong job market could lead to a better environment for stocks during the second half 2023. 

Others, however, remain skeptical about the economy’s resilience. Top economist Mohamed El-ErianEx-Treasury chief warned that there was not enough evidence to suggest a coming downturn will be short or shallow. Larry SummersHe stated that he saw Fed tightening the economy causing severe recession and increasing unemployment to 6%.

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