Are Fewer S&P 500 Companies Now Worried About a Recession?

During each corporate earnings season, companies often comment on economic conditions that may impact their businesses. Given the growth in GDP in the third quarter after two straight quarters of declines in GDP, have fewer S&P 500 companies discussed the term “recession” during their earnings conference calls for the third quarter compared to the second quarter?

The answer is yes. FactSet Document Search (which allows users to search for key words or phrases across multiple document types) was used to answer this question. Through Document Search, FactSet searched for the term “recession” in the conference call transcripts of all the S&P 500 companies that conducted earnings conference calls from September 15 through November 16.

Of these companies, 179 cited the term “recession” during their earnings calls for the third quarter, which is well above the 5-year average of 63 and the 10-year average of 54. In fact, with about 6% of S&P 500 companies yet to report actual results for the third quarter, this is the third-highest number of S&P 500 companies citing “recession” on their earnings calls going back to at least 2010 (using current index constituents going back in time).

At the sector level, the Financials (34) and Industrials (32) sectors have the highest number of companies that have cited “recession” on earnings calls for Q3. On the other hand, the Real Estate (65%), Materials (57%), and Financials (54%) sectors have the highest percentages of companies that have cited “recession” on their Q3 earnings calls during this period.

However, 242 S&P 500 companies cited the term “recession” during their earnings calls for the second quarter (from June 15 through September 14). This is the highest number of S&P 500 companies citing the term “recession” on their earnings calls going back to at least 2010 (again using current index constituents going back in time).

Thus, there has been a 26% quarter-over-quarter decline in the number of S&P 500 companies citing the term “recession” on earnings calls for the third quarter (179) relative to the second quarter (242). Even though the final number of companies citing “recession” for the third quarter will likely finish higher than 179 (with 6% of the index yet to report actual results for the third quarter), it will not finish above the previous quarter’s number of 242.

At the sector level, the Financials (-20) and Information Technology (-10) sectors have recorded the largest quarter-over-quarter declines in the number of companies citing the term “recession” on earnings calls for Q3 compared to Q2. On the other hand, the Utilities (-75%), Energy (-54%), and Communication Services (-50%) sectors have recorded the largest quarter-over-quarter percentage declines in the number of companies citing the term “recession” on earnings calls for Q3 compared to Q2.

It is interesting to note despite the quarter-over-quarter decrease in the number of S&P 500 companies citing the term “recession” on earnings calls for Q3 relative to Q2, analysts and companies have been more pessimistic than normal in their earnings outlooks for the fourth quarter. In terms of earnings guidance from corporations, 67% of the S&P 500 companies (55 out of 82) that have issued EPS guidance for Q3 2022 have issued negative guidance, which is above the 5-year average of 60% (but equal to the 10-year average of 67%). In terms of revisions to EPS estimates, industry analysts cut EPS estimates for S&P 500 companies for Q4 2022 by 3.3% in aggregate during the month of October, which is also above the 5-year average (-1.4%) and above the 10-year average (-1.8%) for the first month of a quarter.

As a result, the index is now expected to report a year-over-year decline in earnings for Q4 2022 (-2.1%) for the first time since Q3 2020 (-5.7%). For more details, please see our recent article on this topic: https://insight.factset.com/sp-500-now-projected-to-report-a-year-over-year-decline-in-earnings-in-q4-2022

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