Recession: Earnings, S&P 500 companies showing no signs

Yahoo Finance markets reporter Josh Schafer details how companies and the current earnings season are seemingly showing no signs of a recession risk.

Video transcript

- Recession fears have been rippling across Wall Street all year. But they have yet to materialize. And with executives shifting focus to other issues like the debt ceiling, does this mean concerns are in the rear view mirror? "Yahoo Finance's" Josh Schafer joins us now. Josh?

JOSH SCHAFER: Yeah, Diane. So I would say what actually might mean that concerns are further into the future maybe in some ways. And just maybe kick down the line. But what we're seeing so far through this earnings season through pretty much the entirety of the first quarter earnings season is recessions have been mentioned less this quarter than they were last quarter. And that's been the case for three quarters now.

You can see they really peaked in that second quarter of 2022. This is mentions from S&P 500 companies, those executives, on earnings calls has dwindled. And it's been interesting to see that coupled with really what we're seeing from economic data that has been very strong.

You take a look at yesterday's flash US composite PMI hitting a 13-month high. And then you take a look at, overall, what we're seeing for projections for GDP for the current quarter. Projections for GDP for the current quarter show growth of almost 3% per the Atlanta Fed. That is, obviously, not a recession indicator. That would be pretty positive.

And then even just look at what we're seeing from earnings right now, guys. You are not seeing recession signs. One of the big things people look for is what are consumers doing. We're seeing a lot of strong consumer sentiment right now, as far as what they're buying. Ask Urban Outfitters.

- Ask Abercrombie.

JOSH SCHAFER: I think they feel pretty good about what they're seeing from the consumer overall right now, though. And it seems like if we are going to talk recession, it's going to get kicked further down into maybe further into the second half of this year. Are we talking about 2024?

- Or even if people are spending, they're spending on different stuff. Maybe if I'm a teen, I'm still buying something in Urban even if I'm not shopping in the clothing section at Target. I don't know. It's very interesting what we're seeing. So how does this all feed back to the Fed and future rate hikes?

JOSH SCHAFER: I was talking to Michael Antonelli, the strategist over at Baird, who I know is a close friend of "The Morning Show" here. And he said, if we have all this positive data, shouldn't we probably be talking about a hike again more than we should be talking about cuts? And that's what we're starting to see when we talk about the pricing that we see from that CME Fed watch tool. That has come down.

The day that CPI was announced on May 10, there was about a 1% chance of a hike. Markets were pricing in about a 1% chance. Markets are now pricing in about a 35% chance, give or take, when you look at it, of a hike in June. And then it's the question of are they going to pause in June. But still, lean toward a hike. And it seems like a lot of people were seeing that.

And then you spin it out even further, we had been talking about cuts in 2024. That was-- or sorry in 2023. That has been also cut down. And people are not really pricing that in--

- You're not going to hike in June.

- People are not really pricing in cuts in 2023, though either. And I think that's interesting to start see is basically, if you're not seeing a recession materialize right now, the Fed might need to keep these rates higher for longer, which seems to be what your pal is starting to indicate.

- Yes. But part of the issue has been the job market. I'm no market strategist. But they're not going to cut in June.

JOSH SCHAFER: 3.4%, it's the best number since 1969. It's strong.

- I wouldn't count on that.

- I could be wrong.

- We never know. All right. Thanks so much, Josh.