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?

Markets expect rate cuts — but your earnings don’t have to suffer. Lock in 7.2% until 2028 from ten individual bonds.

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

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

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

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

Baker Hughes/Trading Economics

Yesterday’s highlights:

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

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:

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.

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

Miner headwind: JPMorgan predicts Bitcoin’s upcoming halving will hit miners’ revenues and increase their production costs.
Crackdown cost-cutting: Binance has laid off more than 1,000 employees in recent weeks.
BNB shorts: Futures activity reveals investors are increasingly short Binance’s BNB token.
Crypto vs. real estate: The NBER says home prices in wealthy countries got a boost from crypto after the 2017 crypto rally.
Everyday crypto: A new Visa-integrated, crypto-based debit card lets holders make everyday purchases with stablecoins.

CoD deal: Sony and Microsoft have signed a 10-year deal to ensure Call of Duty remains available on PlayStation.
Aluminum buyout: A group of Wall Street banks is launching a $1.9 billion debt sale to support Apollo’s acquisition of Arconic Corp.
Drug M&A: Eli Lilly will acquire obesity drug maker Versanis for up to $1.93 billion.
Edu takeout: Goldman Sachs and General Atlantic will take education technology company Kahoot private in a ~$2 billion deal.
Growth mode: Recently valued at $7.35 billion, Fenway Sports Group is looking to expand its sports portfolio.