Yahoo Finance Live anchors break down JP Morgan Chase’s recession forecast.
- Well, we also had some major tech downgrades out of JP Morgan this morning. Doug Anmuth leading the team there. 26 companies had their estimates and price target slashed and this has to do with what we've just been talking about this outlook for the economy. Alphabet, Amazon, Meta, Netflix, SNAP Twitter and more are on this list and this is because Anmuth and his team are looking at what the economists at JP Morgan are saying. They're saying there could be a 66% chance of recession over the next two years. What's the effect going to be on these companies? Nothing good is the long and short of it here.
The biggest estimate reductions he says come in online advertising and e-commerce. Although, they're cutting for a lot of different stuff. They are saying we believe by sand expectations and many equity prices already reflect a softer macro environment. So, even though he's cutting a lot of these estimates, he's still saying some of this could already be priced in.
- Yeah. Look, I understand these calls but I'm going through this list. I'm not seeing any sell ratings and I'm a little surprised to see overweight recommendations on Uber and Lyft and I know the price targets are coming down. But if you're looking at a 66% chance of a recession over the next two years, you would think you would maybe get a little more aggressive with these ratings, a little more aggressive with these price targets even the price target reductions on Alphabet, Amazon, Meta and Netflix, they're still above where the stock is currently trading. So, it's sending a lot of mixed signals I think.
- The thing that did jump out to me though, the 10 companies out of this 26 that were advertising revenue driven businesses at the end of the day where you have Alphabet, of course, Amazon, Meta, SNAP, Twitter, the list goes on. And I think for companies that are looking across some of their own cost restructuring right now, where they are pulling back on that ad spend, and that's a theme that's going to likely play out itself in this earnings season as well when we hear from companies to see exactly how much they are pulling back on that spending and how that's going to impact their revenue at the end of the day too in that client or customer acquisition.
But then even more so from here, it comes at a time where CEO confidence is waning. We saw that show up and even more data that was out from the Deloitte and Fortune CEO survey. More than 80% of CEOs surveyed expect inflation to influence or disrupt their business strategy within the next 12 months and that's now surpassing labor and skill shortage from its previous top position.
- One of the other things that Anmuth says in this note that I think is really interesting context. He's comparing this period to the 28 2009 financial crisis and obviously recession there. He says the key difference is the digital only accounted, this is 12% of total ad spending at that time. You want to guess it how much it accounts for now?
- I'm going 60.
- Oh, that's close enough.
- In between the two, 67% in 2021. He said so online spending is now far more exposed to broader macro trends which makes sense, right. So it's interesting to see this sort of big picture view of how all of this is going to play out between the CEO confidence and slowing economy.
- Yeah, on recession, we just mentioned JP Morgan Citigroup. Nathan Sheets front of the show also out this morning saying there was a 50% chance of a recession next year Deutsche Bank's. Matthew ZTE two weeks ago, his economist raised up his-- pulled forward his recession timeline for next year. So these calls are starting to pile up on a recession.
- He's got to change the last name to Wawa though. Much better than she Sheets.