What is corporate America's earnings recession
An earnings recession in corporate America refers to a period in which many companies, especially those in the stock market, experience consecutive quarters of declining earnings or profits. This phenomenon is often measured in terms of year-over-year (YOY) declines in earnings.
Earnings recessions can be caused by various factors and are a natural part of the economic and business cycle.
Third quarter earnings season begins in earnest this week, and Wall Street analysts expect earnings growth won’t be negative for the first time this year.
The second quarter’s 6% earnings decline was the “trough,” according to Bank of America’s equity strategy team.
“It gets better from here,” BofA strategists Ohsung Kwon and Savita Subramanian wrote in a research note on Wednesday.
Notably, the Street’s consensus projections aren’t for stellar earnings growth in the third quarter but rather flat earnings compared to the same period a year prior. In the fourth quarter, the picture improves further as Wall Street expects earnings to grow at a 9% clip.
Economic Downturn: During a broader economic recession or downturn, consumer spending may decline, leading to reduced demand for goods and services. This can result in lower sales and profits for many companies.
Industry-Specific Issues: Certain industries may face challenges or disruptions that lead to reduced earnings. For example, a technological innovation or regulatory changes can impact earnings in the technology or healthcare sectors.
Global Events: Geopolitical events, trade disputes, and currency fluctuations can have a significant impact on multinational corporations’ earnings, leading to a broader earnings recession.
Corporate Mismanagement: Poor strategic decisions, mismanagement, or accounting irregularities can also contribute to an earnings recession for specific companies or sectors.
High Expectations: Sometimes, earnings recessions can occur when companies have set very high earnings expectations in previous periods. Failing to meet these expectations can lead to the perception of an earnings recession, even if profits are still growing, albeit at a slower rate.
Summary:
It’s important to note that an earnings recession is a temporary phase, and it doesn’t necessarily mean a long-term decline in the health of the corporate sector. Businesses typically adjust their strategies and operations to adapt to changing economic conditions and often recover from such downturns.
Analysts and investors pay close attention to earnings reports and trends to gauge the overall health of the corporate sector and make investment decisions. Earnings recessions can influence stock market performance, corporate valuations, and investor sentiment, as they can be a signal of broader economic challenges
