All that recession talk could be overblown: Morning Brief

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Monday, November 7, 2022

Today’s newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Read this and more market news on the go with Yahoo Finance App.

Weird times.

So I’m sitting on Yahoo Finance Live on jobs report Friday, almost in a state of disbelief. Non-farm payrolls rose by an impressive 261,000. That didn’t strike me as a recessionary print. Then an economist sitting next to me says he sees a recession in 2023 and a 2% rise in the unemployment rate.

“We have a recession call for next year,” Deutsche Bank Securities Chief US Economist Matthew Luzzetti said. “For a while, we’ve had that call. We expect it to happen around the middle of next year. We have the unemployment rate rising to 5.5% by the end of next year.”

Conflicting economic signals, no doubt about it.

But conflicting signals are being seen across the economy, notably as it pertains to U.S. consumers pre-holiday and consumer-centric stocks.

Under Armour’s third quarter sucked last week, and so did the company’s forward guidance. And yet the stock was embraced by the market. Crocs had a solid quarter, but inventory ballooned. Red flag, says my former analyst self. The Street welcomed the quarter anyway. Etsy had a squishy quarter, and the market took it in stride. Same goes EBay.

Then Starbucks reported an 11% same-store sales increase despite ever-inflating prices for its various coffees. Where is the recession there?

“What we focus on is really: How do we sustain that ticket?” Starbucks CFO Rachel Ruggeri told me and Yahoo Finance’s Brooke DiPalma in an interview. “Because it isn’t just pricing, it’s actually volume as well, we’ve seen our customers purchase more… so we’re seeing increased volume.”

Arriving travelers are seen with their luggage outside Starbucks Coffee in the arrivals hall at Terminal 1 in Humberto Delgado International Airport on October 07, 2022 in Lisbon, Portugal. (Photo by Horacio Villalobos#Corbis/Corbis via Getty Images)

And Mastercard’s CEO Michel Miebach tells me there is nothing in his business that suggests recession is imminent.

“Currently, based on the data that we have, there is no such indication [of a recession],” Miebach said. “The consumer is resilient, and that resilience will last. We have no indication that there is a near-term recession.”

All of this brings me to think that perhaps recession talk is overblown. Maybe consumers will come out and spend, spend, spend this holiday season. Maybe investors need to better embrace the solid data they are getting hit over the head with today instead of eyeing a potential future of doom and gloom.

Keep in mind, all of these rosy feels could change on a dime when we get earnings from Walmart, Target, and other retailers in a few days. But for now, perhaps embrace the positive vibes.

Happy trading!

What to Watch Today

Economy

Earnings

Activision Blizzard (ATVI), BioNTech (BNTX), Choice Hotels (CHH), Groupon (GRPN), Lyft (LYFT), Mosaic (MOS), Plantir Technologies (PLTR), Take-Two Interactive Software (TTWO), TripAdvisor (TRIP)