Monday, August 8th, 2022

Thinking about the current economic conditions makes me think of a slack tide. Slack tide refers to the time when the tide appears to neither be rising nor falling. Literally, the water is slack. The current economic conditions seem similarly slack right now. GDP has risen to new heights but is stalling under a new interest rate regime being managed by the Fed to combat high inflation.

During this slack time, we look at all kinds of data to help us determine whether the next immediate phase will be expansion or contraction. Times are uncertain and no one really knows for sure. It is against this backdrop that we are currently amid full throttle earnings season. And while we are using the tidal analogy, let’s introduce the idea of cross currents. Here’s the definition of crosscurrent from Merriam-Webster:

• a current running counter to the generally forward direction
• a conflicting tendency —usually used in plural

It’s not surprising that we are experiencing crosscurrents during this period of uncertainty. Nowhere are these crosscurrents on fuller display than in corporate earnings announcements. Corporate earnings reporting is in full swing, and crosscurrent seems a fitting description.

Looking at the Earning Reports

This week over 3,000 publicly traded companies will report their earnings after 3,000 companies reported the prior week. We have had some high-profile announcements both on the positive and negative sides. Some companies are being hit hard by rising costs and customers who are changing behavior to combat rising costs. Also, wage pressures are mounting in what amounts to a race to attract and retain workers. The squeeze is on. Other companies are finding it easier to pass rising costs onto their customers and earnings are just fine. Similarly, some companies are guiding lower while some remain sanguine. This we suspect will continue to characterize the announcements we see this week.

So far, labor markets are holding up. We are not seeing announcements of mass layoffs at the larger companies. While this earnings season has so far led to some breathing and a sigh of relief, we still get the sense we don’t have much clarity given the economic backdrop. It may take a couple more earnings seasons (think January of 2023) to get the clarity we need. In the meantime, please enjoy the remainder of summer.