The Transcript Editor's Commentary

Themes from our newsletter

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-Scott  

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New Expectations, Same Data

The S&P 500 surged last week as it recovered from its brief flirtation with recession fears. As the market rose, the conversation seemed to catch up with what we found in earnings call transcripts. As we mentioned in last week’s commentary, most CEOs seem to think that the economy is not trending toward a recession.

This sentiment was captured in Walmart’s earnings call last week. Doug McMillan, Walmart’s CEO, said that “things have been remarkably consistent” and that “we aren't experiencing a weaker consumer overall.” Economic data seemed to reinforce Walmart’s comments. The retail sales report was better than expected, up 1% in July.

However, even though the economic data beat expectations that doesn’t mean that it was strong. Retail sales growth was 1% m/m but only 2.7% y/y. Importantly, the retail sales report is not adjusted for inflation. Considering that CPI was also “better than expected” at a 2.9% y/y increase, this implies that real retail sales growth may have actually been negative.

All of this data squares with our commentary from last week. Market expectations shifted very fast and became overly negative, but the data is still not very good.

In this week’s newsletter, we continued to see signs of weakness across consumer and industrial sectors, including former areas of strength like restaurants and travel. Commentary from industrial companies suggests that the environment may actually be getting worse before it gets better. 

NXP semiconductor for instance noted that