September 28, 2022

Unitranche

Supportive Business Potential

A key point being lost amid fears of an economic slowdown

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Friday, July 22, 2022

Today’s newsletter is by Myles Udland, senior markets editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn.

Earnings season is underway and investors are keen on getting the same insight from every public company out there: Are we heading into recession?

Some companies will say yes. Others are less certain.

In any case, there is no doubt the broader economic environment can be blamed for all manner of business challenges. For instance, a slowdown in soap and candle sales.

But often lost in these “here-and-now” discussions of the economic environment is what we’re exiting: A period of unprecedented fiscal stimulus and financial speculation which warped expectations about both financial markets and the broader economy.

2016 Rio Olympics - Athletics - Final - Women's 3000m Steeplechase Final - Olympic Stadium - Rio de Janeiro, Brazil - 15/08/2016. Emma Coburn (USA) of USA celebrates after winning bronze    REUTERS/Lucy Nicholson  TPX IMAGES OF THE DAY  FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS.

Emma Coburn of USA celebrates after winning bronze at the 2016 Rio Olympics. REUTERS/Lucy Nicholson

And a recent report on layoffs from crypto company Blockchain.com reminded us of this crucial context.

On Thursday, CoinDesk reported that Blockchain.com would lay off 25% of its staff. That would add Blockchain.com to the list of crypto firms including Coinbase (COIN), Gemini, and OpenSea that have announced staff reductions in recent weeks.

But in its story, CoinDesk noted Blockchain.com’s cuts would return its staffing levels to those seen at the beginning of this year — and this after cutting a quarter of its workforce.

For those employees now out of work in an industry that is mid-process in a rapid contraction of optimism and enthusiasm, this is little consolation. As The Information’s Kate Clark tweeted the other day, there have now been over 53,000 startup employees laid off so far this year.

Companies resetting themselves back to the staffing or investment levels that were appropriate just 8 months ago isn’t quite a recession. It’s more like a reset.

Notably, “reset” is the word Fed chair Jay Powell used back in June when talking about current pressures in the housing market. And as a report from Redfin published Thursday showed, those pressures continue to build apace.

Earlier this week, we argued the signal from corporate hiring announcements was not necessarily recessionary but certainly cautionary.

Basically, the world most management teams planned for in 2022 has not come to pass. And given the surprises facing businesses amid a rapid rise in interest rates, companies are just trying to adjust to the present rather than signaling something about the future with the recent spate of hiring and investment announcements.

A few weeks back, Yahoo Finance Editor-in-Chief Andy Serwer wrote that it seems just about everywhere you turn, we’re asking if things will go back to the way they were in February 2020. And this is not just a business question: Harry Styles asks the same in his recent hit single.

Anywhere it seems you turn in the culture, there is uncertainty about the past’s role to shape our coming present. In the end, the answer to these questions will most likely be an unsatisfying “maybe.”

But as we continue to see slowdowns in the labor market, the housing market, and the stock market, it is worth remembering that we’re still just working off the excess of a frenetic period in economic history.

Corporate earnings, announcements, mergers, layoffs, and the like are all so closely tracked by investors because of what they say about the future. Investing is, after all, about estimating the present value of discounted future cash flows — so don’t tell me what you make, tell me what you’re going to make.

Today’s economic situation, however, asks investors and leaders to have a bit less foresight and a bit more gumption.

Act now so you make it to a tomorrow.

And let tomorrow’s challenges be handled then.

What to Watch Today

Economic calendar

  • 9:45 a.m. ET: S&P Global U.S. Manufacturing PMI, July preliminary (51.8 expected, 52.7 during prior month)

  • 9:45 a.m. ET: S&P Global U.S. Global Services PMI, July preliminary (52.4 expected, 52.7 during prior month)

  • 9:45 a.m. ET: S&P Global U.S. Composite PMI, July preliminary (52.3 during prior month)

Earnings

Pre-market

  • Twitter (TWTR), American Express (AXP), Verizon Communications (VZ), HCA Healthcare (HCA), Schlumberger (SLB), Regions Financial (RF), Cleveland-Cliffs (CLF)

Post-market

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