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Tuesday, July 5, 2022
Today's newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
So there I am sitting with the Yahoo Finance team last week at our local NYC watering hole.
I ordered a few Corona Lights — mostly to check prices ahead of our interview with the CEO of the brand’s manufacturer Constellation Brands (STZ) two days later (video above) — and surveyed the room: A venue and bar filled with a mix of millennials, plus or minus a few years.
I thought: "This place would be at least 25% less crowded if we were in a nasty recession."
Two days later, I asked Constellation Brands CEO Bill Newlands how the business did in June. His response: "We think June is going to be very solid and consistent with our annual algorithm."
"One of the things that’s important to recognize about beer is it’s a staple for many, many people," Newlands added. "Therefore when choices get made, often beer still ends up in the basket."
Even when adjusting for the typical CEO bravado, that didn't exactly strike me as a recessionary tone.
Calling a recession has become the cool kid thing to do on Wall Street for the better part of two months.
First, a few of the well known investment banks made the 2023 recession call.
Now, economists have raised probabilities for a recession in 2023 and pulled forward estimates on when the downturn may strike. And in many respects, a recession has become the baseline expectation on the Street amid rampant inflation and fears of slowing job growth — something reflected in stocks being in a bear market.
Not helping economic sentiment are ugly profit warnings in recent weeks from Target, Micron, Bed Bath & Beyond, and RH.
In fact, we may be on the precipice of a technical recession (explained here by our Brian Cheung in a Yahoo U) being confirmed in the GDP data.
"The Atlanta Fed GDPNow model is now predicting a 1.0% decline in Q2 U.S. economic output," DataTrek recently noted. "When you put that together with Q1’s -1.6% reading, you fulfill the technical requirement for a recession." On Friday, this news got worse: the Atlanta Fed's model is now forecasting a 2.1% drop in the second quarter.
At the same time, perhaps some households (though not all) are starting to feel some relief on the inflation front — gas has come down, for starters, and other inflation indicators have begun to roll over. Most people still have jobs and aren’t getting indications from their employers that entire departments are about to get wiped out because business has crashed. If this wasn’t the case, a household would not be dropping $200 on some Roman Candles and a few cakes of jumping jacks for a July 4th party of 10 people.
None of this is to say confidence hasn’t been rattled by the plunge in stocks and households aren’t worried about their financial futures.
But if we've begun to climb out of the first half abyss and the second half is marginally better, we could be looking at the final stages of this bear market. Or maybe our local happy hour crowd just happens to be a lagging indicator.
Happy trading!
What to Watch Today
Economic calendar
Factory Orders, May (+0.5% expected, +0.3% during prior month)
Factory Orders Excluding Transportation, May (+0.3% during prior month)
Durable goods orders, May final (+0.7% expected, +0.7% during prior month)
Durables excluding transportation, May final (+0.7% during prior month)
Non-defense capital goods orders excluding aircraft, May final (+0.5% during prior month)
Non-defense capital goods shipments excluding aircraft, May final (+0.8% during prior month)
Earnings
Pre-market
No notable companies expected to report.
Post-market
No notable companies expected to report.
Yahoo Finance Highlights
Why the 'magazine indicator' still works for modern investors
Tesla says June was best month ever as China lockdowns weigh on Q2 deliveries
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