Is bad data now good news for stocks? | The Big Conversation | Refinitiv

TL;DR

Falling commodity prices and weakening economic data indicate a potential recession, challenging the notion that bad news is good news for asset prices. As inflation eases, it may not translate to a bullish outcome for equities.

Transcript

since the summer copper has fallen by over 15 percent oil after its own 35 tumble is now negative on a year-over-year basis Lumber iron ore Global shipping rates one by one the factors that contributed to the surging price pressures throughout 2022 are quickly receding and that spells good news for a peak in inflation but does this imply a bullish ... Read More

Key Insights

• 🍂 Falling commodity prices and weakening economic data suggest a potential recession.
• 🥺 The Fed's tightening campaign is impacting economic demand, leading to a correction in commodity prices.
• 👷 Home buyer traffic and construction activity are slowing down, which could result in job losses.
• 😄 While inflation may ease, the Fed's projections indicate it will remain above the target.
• 🥺 A potential recession may not be bullish for equities, as it can lead to contracting corporate profits.
• 😥 Profit estimates for the coming year may be overestimated, considering the indicators pointing towards a potential recession.
• 🍂 China's ongoing COVID measures and potential demand slowdown contribute to falling commodity prices.

Questions & Answers

Q: What factors indicate a potential recession?

The correction in commodity prices, weakening economic indicators like the U.S. manufacturing PMI, and a decline in home buyer traffic all suggest a potential recession.

Q: How does falling commodity prices impact inflation?

Falling commodity prices indicate easing inflationary pressures. However, the Fed's projections show inflation remaining above the target, leading to continued rate hikes.

Q: Can a potential recession be considered good news for equities?

A recession tends to coincide with a fall in corporate profits. Easing price pressures due to a recession may not be bullish for equities, as it could lead to contracting corporate profits.

Q: How accurate are profit estimates for the coming year?

Profit estimates for next year still reflect significant growth. However, if corporate profits tend to contract during a recession, it casts doubt on the accuracy of these estimates.

Summary & Key Takeaways

• Copper and oil prices have fallen significantly, signaling a potential recession and easing inflationary pressures.

• Industrial commodity prices and leading indicators, such as the U.S. manufacturing PMI, support the notion of a slowdown in economic demand.

• Housing market indicators, like home buyer traffic, suggest a slowdown in construction activity and potential job losses.

• While some price pressures ease, the Fed's projections show inflation remaining well above the target, leading to continued rate hikes.