Is the much-debated US recession no more?

Yasmine Raso

Senior Journalist

14 August 2023

With market commentary divided between the certainty and timing of a US recession, Pendal Group has become the latest investment manager to support forecasts delaying it to 2024.

Ashley Pittard, Portfolio Manager of the Pendal Concentrated Global Shares Fund, said the latest capital expenditure figures from the June quarter’s US earnings season were strong and point towards a ‘postponed’ recession.

“Over the last ten years, US companies under-invested. Since the global financial crisis, only 38c in every dollar that was generated from operations or borrowed, was invested,” he said.

“Before the global financial crisis it was 53c.

“What you are seeing in the earnings numbers, and what you have seen the entire year, is that capital expenditure is accelerating – 15 per cent in the current quarter, year-on-year, and 14 per cent in the first quarter.

“It’s very hard to have a recession when you capital expenditure is so high.”

Pittard’s comments come as Bank of America withdrew its recession call, the first big Wall Street bank to do so, and joined the US Federal Reserve’s chief economists in no longer forecasting a recession.

He said the re-forecasts follow earnings beating original estimates by approximately four per cent and sales by one per cent.

“We are seeing better margins. The ‘beats’ are about the historical average, so it’s been a nice earnings season. Where you’ve seen most headwinds is in energy, year-on-year, and that’s because prices are lower.

“Materials have come back due to softness in China. And the low-end semi-conductor sector has been weak, cutting their guidance and outlining high inventory levels.”

Pittard also cautioned investors to be “selective” of the Wall Street technology companies that have strongly performed this year due to increasing popularity particularly among young investors entering the market.

“One of the core themes in our concentrated share fund since the beginning of the year was keep the COVID losers but be selective on 2022 losers. And 2022 losers were mostly tech stocks,” he said.

“We have been selective. We don’t own Apple, Microsoft, Nvidia and Tesla. In Apple’s case, the only thing that grew last quarter was their service business. [Meta, Amazon and Google] are the businesses which have a better skew towards where the growth is, particularly Artificial Intelligence.”