Economists Push Out Recession Forecasts... Again

Last quarter's earnings day moves were 3.6x the average daily move. Will we see more of the same this season?

Market

Prices as of 4 pm EST, 7/14/23

Macro

The economic rebound in China has failed to meet lofty expectations.

In fact, it’s largely disappointed and the latest data isn’t helping.
GDP expanded by just 0.8% in Q2 thanks to soft retail sales and a drop in private-sector
That pushed annual economic growth to 6.3%, well below forecasts of 7.3%.
Driving the slowdown are deflation, a +20% youth unemployment rate, and—above all else—a large drop in property investment.

Stop me if you’ve heard this before: economists are pushing out recession expectations.

A new WSJ poll shows economists’ probability of a recession within the next year fell to 54% from 61%.
That’s the largest drop since August 2020.
The main reason for optimism: declining inflation and an increasingly clearer path to a soft landing.
Is it just me, or have we seen this headline a thousand times over the last year?

Economists aren’t the only ones holding brighter outlooks.

The University of Michigan’s Consumer Sentiment Index reached its highest level since September 2021 in July.
The monthly swing in sentiment was the largest since 2006.
Lower prices and a healthy jobs market were behind the renewed optimism.
On the other hand, inflation expectations edged up to 3.4% from 3.3%.

University of Michigan

Stocks

America’s biggest bank posted its biggest quarterly profits ever in Q2.

JPMorgan reported $14.5 billion in net income on a 34% YoY increase in revenue.
Solid loan growth and higher interest rates led to a 44% rise in net interest income.
The bank upped its 2023 net interest guidance for the third time to $87 billion.
Jamie Dimon: “Consumer balance sheets remain healthy, and consumers are spending, albeit a little more slowly.”

After becoming a household name following its historic post-Covid rally, ARK Innovation ETF (ARKK 2.14%↑) has been struggling to hold onto investors.

The fund has seen $717 million in net redemptions over the last year.
Once at close to $30 billion—making it the largest actively managed ETF—AUM has been cut by roughly 2/3 to ~$9 billion.
While ARKK has outperformed the indices YTD, there’s a clear lag in its recovery back to all-time highs:

@HayekAndKeynes

Energy

The Baker Hughes oil & gas rig count is a leading indicator for future output.

Last week, the total number of rigs dropped to 675 from 680.
That marked the 10th decline in 11 weeks.
Total oil rigs, meanwhile, are at their lowest since April 2022 (chart).
Driving the decline in rigs: declining oil prices.

Baker Hughes/Trading Economics

Earnings

Yesterday’s highlights:

Wells Fargo WFC: $1.25 EPS (vs. $1.16 expected), $20.53 billion in sales (vs. $20.17B expected).

Profits jumped 57% in Q2 thanks to a 29% rise in net interest income.
The bank expects a 14% annual increase in net interest income for 2023.

Citigroup C: $1.33 (vs. $1.30 expected), $19.44 billion (vs. $19.29B expected).

A 1% decline in revenue led to a 36% drop in net income.
The bank cited challenging economic conditions that led to higher expenses, credit costs, and weak sales.

What we’re watching today:

Equity Lifestyle Properties ELS
FB Financial FBK

Top Headlines

G20 meetings: Central bank officials and financial ministers from the Group of 20 are meeting in India for 2 days.
No grain pact: Russia suspended a humanitarian corridor to transport Ukranian grains to global markets in the final hour.
Teams antitrust: The EU Commission is launching a formal antitrust investigation against Microsoft over Teams.
Dollar decline: Many believe the dollar’s recent weakness is foreshadowing its demise.
Pilots deal: United Airlines reached a preliminary deal with its pilots which includes 40% raises.
Hollywood strike: The ongoing strike in Hollywood is threatening to seriously impact 2024’s release calendar.
Cybertruck: Four years after unveiling the concept, Tesla has finally begun producing Cybertrucks.
HELOCs: Interest in home equity lines of credit has risen along with mortgage rates.

Crypto