Roughly 95% of the S&P 500 have reported earnings results for 2Q’24. With a beat rate of roughly 79% for earnings and 60% for revenue, the S&P 500 is estimated for earnings growth of 12.7% with revenue growth 5.4% year-over-year. While a great deal of emphasis is placed on the quarterly results and commentary from the Magnificent Seven on a quarterly basis, there is still information to garner from the entirety of S&P companies and what they focused on in their earnings calls.
The below study utilizes Bloomberg to parse and count every mention for select keywords in S&P 500 conference call transcripts. The value in such a high level survey of company transcripts is the ability to determine prevalent trends for certain topics throughout the market and their perceived impact on corporate profitability and growth. Taken together, investors are able to gauge what the most topical discussion points are in corporate calls and learn what is impacting corporate strategy.
“AI”
The AI revolution has captured the imagination and enthusiasm of investors and companies globally. As artificial intelligence has become more recognized for its incredible potential for corporations across various industries from Utilities to Health Care, the mentions of “AI” have surged in S&P 500 corporate transcripts. While AI is just off its peak in popularity from a transcript standpoint, the trend in AI’s structural adoption is underway and mentions remain considerably higher than the recent past.
“Recession”
Mentions of “recession” among S&P 500 companies imply there is not much concern for an imminent economic slowdown. The current tally of “recession” mentions is well below the spikes seen at the height of the Covid-19 pandemic and the pick-up in technology job layoffs seen in 2022. In fact, it is approaching the lows seen in February 2022. Contrarians may consider this a sign of complacency among CEOs and CFOs.
“Inflation”
In the wake of the pandemic, inflation surged globally, catalyzed by supply chain issues and abundant liquidity from government stimulus programs. Consequently, “inflation” dominated the news and investment backdrop. S&P 500 companies discussed inflation and its impact on costs and profits with intensifying frequency until mid-2022. Since then, pricing pressures have lessened. Subsequently, mentions of “inflation” in corporate transcripts have decreased as well. For now, the concern for inflation has lessened significantly, but remains elevated compared to the past few years.
“Higher for Longer”
The regime change in interest rates has led to companies discussing the prospects of interest rates remaining “higher for longer” and what their impacts on corporate profitability will be. With the Fed apparently set to cut rates in September, it seems the intermediate term trajectory for interest rates is lower for now, but the possibility of interest rates trading higher than levels seen during the Fed’s zero interest rate policy regime looks plausible.
“Rate Cut”
Following the Covid-19 pandemic, the U.S. Federal Reserve raised interest rates along with other global central banks in order to tame rampant inflation. As inflation has come under control, conversation around the Fed cutting rates in tandem with other global central banks is increasing. Albeit with a lower absolute level than other transcript mentions, S&P 500 mentions of “rate cut” have surged in 2024. With the next meeting on September 18th, the Fed looks poised to begin cutting interest rates and reducing the cost of capital.
“Election”
The mention of “election” within company transcripts is clearly episodic as the U.S. political landscape changes and evolves. What is interesting is that the current cycle spike in election mentions is higher than other recent periods in history, perhaps a signal of how contentious the current election race is. With Vice President Harris introduced as the Democratic nominee to campaign against Former President Trump, companies are now shifting to handicap how these contrasting administrations could affect the operating environment.
“Tariffs”
The discussion of “tariffs” has not seen much frequency since the Trump administration. Tariffs conversation picked up rapidly in 2018 and occupied S&P 500 company mindshare until the Biden presidency began. Interestingly, the talk of “tariffs” has seen a small uptick in corporate transcripts. This perhaps could be a sign of companies weighing the possibilities of tariff implementation if President Trump wins the election.
What This Means for Investors
Ultimately, it appears that the market fears around recession and inflation are waning with less economic uncertainty, a positive for investors. The fear of an imminent recession or second wave of inflation appears to be low. The higher than normal conversation around the U.S. presidential election is likely emblematic of a more contentious cycle than prior history, which could lead to greater volatility. But this has not fully discouraged risk-taking, as the structural shift towards the AI revolution appears to be in its nascent stages with optimism on its prospects staying elevated. With interest rates seemingly positioned for a move lower, the current operating environment appears to be positive for the S&P 500 as corporate fundamentals broaden.
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