Investors worried about the U.S. teetering on the brink of recession may be relieved this earnings season by early comments from corporate executives that demand remains strong and a potential recession moderate.
American Express Co’s chief financial officer, one of the latest to offer a relatively optimistic outlook for the US economy, told Reuters on Thursday that customers were showing resilience and that he saw no signs of a slowdown yet.
However, the credit card company reported quarterly earnings below analysts’ expectations as it set aside a large amount to cover potential defaults.
A week after the release of first-quarter results from U.S. companies, equally upbeat comments about the state of the economy came from the heads of Bank of America, Baker Hughes and Delta Air Lines and United Airlines. America’s ability to avoid a prolonged recession.
“Traders and consumers are more cautious, but there’s no sign of them falling off a cliff,” said Quincy Krosby, chief global strategist at LPL Financial.
That outlook contrasts with Wall Street’s gloomy forecast for corporate earnings, according to Refinitiv’s IBES data. This would mark the second straight quarterly decline in corporate earnings, with the last “revenue slump” occurring in 2020 when Covid-19 hit corporate earnings.
So far, 76% of 88 companies have beaten analysts’ earnings expectations, compared with an average of 74% over the past four reporting periods, according to Refinitiv data. Additionally, overall, companies reported a better-than-expected 7.8%, compared to an average of 4.2% in the previous four quarters.
American Express was one of the big absentees, while Tesla posted its lowest quarterly gross margin in two years on Wednesday.
Many economists are still predicting a recession in the U.S. in 2023 or 2024, and some companies have already cut jobs in anticipation of the recession. Aggressive interest rate hikes by the Federal Reserve since last year in an effort to control inflation have fueled fears of a recession, while last month’s collapse of two US regional banks raised concerns.
Yet some business leaders have recently indicated that the U.S. economy may avoid a deep recession.
Baker Hughes Co. In a presentation this week, he said the energy outlook remains constructive despite high recession risks.
Both Delta and United have presented optimistic short-term outlooks for travel demand, with Delta saying a week ago that summer travel demand would translate into higher-than-expected profits in the quarter ended June, despite other risks.
United’s chief executive, which released its results this week, said in a statement Tuesday that bookings for international travel were growing twice as fast as domestic travel.
Separately, Bank of America Chief Executive Brian Moynihan told analysts after the company’s quarterly earnings release this week that “everything points to the recession being relatively mild, depending on the stimulus paid to people and the money they have left”.
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