Are We Approaching a Recession? Insights from Current Market Trends

Key economic indicators signaling recession risks

Key economic indicators are signaling recession risks, with Goldman Sachs forecasting a global recession from mid-2024 to mid-2025, marked by economic contraction and rising unemployment. Additionally, JPMorgan highlights public pessimism, with over 50% of Americans believing the U.S. is already in a recession, despite healthy economic measures.

"The adverse economic scenario of the forecast model reflects a global recession in the second half of 2024 through the first half of 2025, resulting in an economic contraction and rising unemployment rates." --- (GS, sec filing, 2024/Q2)

"Though the economy remains healthy by most measures and inflation is well below its peak, many Americans have a pessimistic view of the economy, with more than 50% believing that the U.S. is in a recession." --- (JPM, press release, 2024/07/30)

"The adverse economic scenario of the forecast model reflects a global recession in the second quarter of 2024 through the second quarter of 2025, resulting in an economic contraction and rising unemployment rates." --- (GS, sec filing, 2024/Q1)

"They won't muddle through under higher rates with the recession. That would be tough for a lot of folks and not just real estate if, in fact, that happens." --- (JPM, earning call, 2024/Q1)

"The forecasted economic scenarios consider a number of risk factors relevant to the wholesale and consumer portfolios." --- (GS, sec filing, 2024/Q1)

Trends in consumer spending and confidence

Consumer spending trends are mixed, with some retailers noting a shift back to services and entertainment post-pandemic, while others face pressure from inflation and interest rates. Overall, robust demand persists in certain sectors, but macroeconomic uncertainties are impacting consumer confidence and spending patterns.

"Other Information ." We expect continued uncertainty in our business and the global economy due to inflationary trends, a challenging macro environment, geopolitical conditions, supply chain disruptions, volatility in employment trends and consumer confidence." --- (WMT, sec filing, 2025/Q2)

"In addition, business trends continue to reflect a normalization in spending patterns that first emerged more than 2 years ago, a pattern where consumers are remixing their spending back into services and entertainment outside of their homes after curtailing those activities during the pandemic." --- (TGT, earning call, 2025/Q1)

"During the quarter, higher interest rates and greater macroeconomic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects." --- (HD, earning call, 2024/Q2)

"In addition, changes in fuel, utility, and food costs, interest rates, and economic outlook may impact customer demand and our ability to forecast consumer spending patterns." --- (AMZN, sec filing, 2024/Q2)

"Private-label products typically offer higher margins than national brands, and the company's efforts to introduce new and innovative private-label items have attracted customers seeking quality at lower prices.Consumer Demand and Economic ContextThe robust consumer demand highlighted in Walmart's earnings report indicates broader trends in the retail sector." --- (WMT, press release, 2024/08/21)

Corporate earnings and sector performance analysis

Corporate earnings show mixed signals amid potential recession concerns. Disney reports a 35% increase in adjusted EPS despite segment challenges, while Caterpillar highlights strong profit margins but anticipates lower machine volumes. Boeing's financial metrics reveal ongoing losses, indicating sector-specific struggles that could reflect broader economic trends.

"Despite softer third quarter performance in our Experiences segment, adjusted EPS(1) for the company was up 35%, and with our complementary and balanced portfolio of businesses, we are confident in our ability to continue driving earnings growth through our collection of unique and powerful assets." --- (DIS, press release, 2024/08/07)

"I'd like to just close by thanking our global team for their strong performance in the first quarter, including higher adjusted operating profit margin, record adjusted profit per share and strong EM&T free cash flow." --- (CAT, earning call, 2024/Q1)

"Consolidated Results of Operations and Financial Condition Consolidated Results of Operations The following table summarizes key indicators of consolidated results of operations: (Dollars in millions, except per share data) Three months ended March 31 2024 2023 Revenues $16,569   $17,921 GAAP Loss from operations ($86) ($149) Operating margins (0.5) % (0.8) % Effective income tax rate 6.1   % 14.3 % Net loss attributable to Boeing Shareholders ($343) ($414) Diluted loss per share ($0.56) ($0.69) Non-GAAP (1) Core operating loss ($388) ($440) Core operating margins (2.3) % (2.5) % Core loss per share ($1.13) ($1.27)" --- (BA, sec filing, 2024/Q1)

"Key Metrics In addition to revenue, costs and operating income, management uses the following key metrics to analyze trends and evaluate the overall performance of ESPN+ (1) , and we believe these metrics are useful to investors in analyzing the business: Quarter Ended % Change Better (Worse) March 30, 2024 December 30, 2023 April 1, 2023 Mar." --- (DIS, sec filing, 2024/Q2)

"Next, I'll discuss Resource Industries. After strong performance in 2023 in mining, as well as heavy construction and quarry and aggregates, we anticipate lower machine volume versus last year, primarily due to off-highway and articulated trucks." --- (CAT, earning call, 2024/Q1)

Inflation trends and their economic impact

Inflation trends are expected to remain moderate, positively impacting consumer purchasing power and economic growth. However, potential escalations in inflation could negatively affect sales and earnings, highlighting the delicate balance between inflationary pressures and economic stability.

"And yes, it comment earlier on our inflationary trends would expect them to be fairly moderate for the balance of the year, fairly smooth through the balance of the year." --- (PEP, earning call, 2024/Q1)

"More broadly, there could be additional negative impacts to our net sales, earnings and cash flows should the situation escalate beyond its current scope, including, among other potential impacts, economic recessions in certain neighboring countries or globally due to inflationary pressures and supply chain cost increases or the geographic proximity of the war relative to the rest of Europe." --- (PG, sec filing, 2024/Q3)

"And not surprisingly, when you look at the cumulative impact that inflation has had on their baskets of goods and services and their ability to continue to afford them." --- (KO, conference, 2024/09/05)

"Michael K. Wirth: Yes, certainly in the economy broadly speaking, we have seen inflation pressures easing and I think that’s good for consumers, it’s good for economic growth." --- (CVX, earning call, 2024/Q2)

"Inflation rates and currency exchange rates continue to have an effect on worldwide economies and, consequently, on the way the Company operates." --- (JNJ, sec filing, 2024/Q1)

Central bank policies and recession outlook

Central bank policies are tightening more than expected, raising recession risks across the economy. Anticipated interest rate cuts by the Federal Reserve may stabilize markets, but caution remains regarding overall economic health, as investors adjust their expectations amid these developments.

"Central bank policy is showing signs of staying tighter than some predicted at the start of the year, driving investors to adjust their expectations for interest rates." --- (GS, Twitter, 2024/05/22)

"The outlook is based on continued buying of %Gold bullion among central banks around the world and interest rate cuts by the U.S. Federal Reserve, which could lead to inflows into physically backed gold exchange-traded funds (ETFs)." --- (BAC, press release, 2024/06/24)

"While the mini banking crisis of 2023 is over, I strongly caution everyone to be aware of higher rates of recession, not just for banks, but for the whole economy." --- (JPM, event transcript, 2024/05/21)

"So you're seeing more stability as time goes by there. Once the Fed starts lowering rates, which the market expects to happen later in the year, you'll start to see betas on the way down on the wholesale side of the deposit base. You'll continue to see some gradual sort of repricing on the asset side as you see more securities and more loans sort of roll." --- (WFC, earning call, 2024/Q2)

"Additionally, markets were focused on the potential timing and amount of policy interest rate cuts by central banks globally, as well as the potential outcomes of national elections." --- (GS, sec filing, 2024/Q2)

Economic forecasts and recession predictions

Economic forecasts indicate a complex landscape, with potential for recession tied to interest rate fluctuations and inflation. Experts highlight uncertainty in deposit forecasts and credit loss estimates, suggesting that economic conditions remain unpredictable, influenced by both domestic and global factors.

"Ted Pick: Well, it's a great question. It depends on whether rates are higher because they are sustaining continued growth in the U.S. or if they are higher for a period of time and are followed by a tough landing, in which case we're in recession and clearly then things will slow down." --- (MS, earning call, 2024/Q1)

"Deposit forecasts are a key assumption in the Firm's earnings-at-risk. The baseline reflects certain assumptions relating to the reversal of Quantitative Easing that are highly uncertain and require management judgment." --- (JPM, sec filing, 2024/Q2)

"We'll be toggling between some bouts of inflation and potential recession. We'll be dealing with the unpredictability going to not only our own cycle, US election cycle, but the world around us." --- (MS, earning call, 2024/Q2)

"To demonstrate the sensitivity of credit loss estimates to macroeconomic forecasts as of June 30, 2024, the Firm compared the modeled estimates under its relative adverse scenario to its central scenario." --- (JPM, sec filing, 2024/Q2)

"Q3'24 Inflation 54% 2024 election 34% Market volatility 22% A recession 20% Earnings 14% Geopolitical conflict 12% Energy costs 12% Narrow market driven by mega-caps 11% Fed monetary policy 10% None 2% Please rate how much you agree or disagree with the following statements." --- (MS, press release, 2024/07/17)

Historical context: Past recessions and current parallels

Current market conditions show parallels to past recessions, with JPMorgan highlighting low credit loss expectations and ExxonMobil noting stable crude prices. Walmart's historical resilience during downturns suggests potential for similar performance, while Exxon emphasizes stronger current earnings compared to previous cycles, indicating a different economic landscape.

"So that is clearly very low by historical standards. And while we take a lot of pride in that number, I think it reflects the discipline in our underwriting process and the strength of our credit culture across bankers and the risk team, that's not -- we don't actually run that franchise to like a zero loss expectation. So you have to assume there will be some upward pressure on that." --- (JPM, earning call, 2024/Q2)

"ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Second quarter crude prices were essentially unchanged versus the first quarter, near the middle of the 10-year historical range (2010-2019), as the market remains relatively balanced." --- (XOM, sec filing, 2024/Q2)

"Robbie Olms: And Walmart historically does well in things like recessions. With all these changes in marketplace and convenience, how do you think Walmart would perform if we had another recession?" --- (WMT, conference, 2024/06/25)

"And in that context, keeping in mind what we always say, that we invest in the cycle, that we don't go into countries and then leave countries, et cetera, obviously we adjust around the edges, we manage risks, we do make choices as a function of the overall geopolitical environment, but broadly the notion that we would pull back meaningfully from one of the key competitive strengths that this company has always had, which is its sort of global character because of a particular moment geopolitically would just be inconsistent with how we've always operated." --- (JPM, earning call, 2024/Q1)

"I think if you compare similar markets that were even close to these bottom of cycle conditions, we were in a very different place in the past with respect to earnings than we find ourselves today, where we delivered close to $800 million of earnings this quarter, despite the very difficult market conditions." --- (XOM, earning call, 2024/Q1)

Global economic influences on domestic recession risks

Global economic and geopolitical conditions significantly influence domestic recession risks. Companies like Mastercard and Amazon highlight that regional economic health, interest rate changes, and unforeseen global events can amplify risks, while Disney notes that political conditions affect financial operations, further underscoring the interconnectedness of global and domestic economies.

"The risk of loss on these guarantees is specific to individual customers, but may also be driven by regional or global economic and market conditions, including, but not limited to the health of the financial institutions in a country or region." --- (MA, sec filing, 2024/Q1)

"In addition, global economic and geopolitical conditions and additional or unforeseen circumstances, developments, or events may give rise to or amplify many of these risks." --- (AMZN, sec filing, 2024/Q1)

"The economic or political conditions in a country have reduced and in the future could reduce our ability to hedge exposure to currency fluctuations in the country or our ability to repatriate revenue from the country." --- (DIS, sec filing, 2024/Q3)

"They raised rates. And then Europe, you see Germany came through with actually a small recession in the past quarter." --- (MA, earning call, 2024/Q2)

"and productivity. In addition, global economic and geopolitical conditions and additional or unforeseen circumstances, developments, or events may give rise to or amplify many of these risks." --- (AMZN, sec filing, 2024/Q2)