Wonder where the economy is heading? Pay attention to earnings

FedEx’s The CEO of PVH (FactSet senior earnings analyst John Butters noted that the magnitude of the change in earnings estimates is the biggest since the second quarter of 2020, which is when many companies first went into shutdown mode.Aggressive rate hikes by the Federal Reserve, which are expected to continue with the Fed likely raising rates sharply again later this week, are also stoking the recession fears. What’s more, other global central banks, including the European Central Bank and Bank of England, are now in tightening mode too. That adds to the risk that a global spike in rates will lead to a further slowdown in earnings, consumer spending and the overall economy.”Sentiment and market momentum have turned decidedly negative,” said Mark Hackett, chief of investment research at Nationwide, in a report last week. “Earnings fears have now joined inflation and the Fed at the front of mind of investors.” Hackett added that “growth expectations continue to moderate” and that CEOs and small businesses are increasingly worrying about a recession. It’s worth noting that not all recessions are “Great Recessions” like 2008. The US economy had far more modest downturns in 1990 after oil prices spiked during the first Gulf War as well as in 2001 following the implosion of the dot-com bubble. And the Covid recession of 2020 lasted just two months, the briefest downturn on record. There is one possible bright spot. The US housing market, despite concerns about surging prices and soaring mortgage rates, is expected to slow but not crash like it did during the subprime crisis of 2007 and 2008.Executives at companies such as construction equipment giant Deere (DE), home improvement retailers Home Depot (HD) and Lowe’s (LOW) and appliance maker Whirlpool (WHR), have acknowledged in conference calls that while a short-term softening of demand for housing is likely, another massive bubble burst doesn’t appear to be in the cards.