Strong second-quarter earnings may indicate no need to worry about a recession, according to Goldman Sachs analysts, though the U.S. economy has contracted for two consecutive quarters.
U.S. S&P 500 companies saw a 9% year-on-year increase in earnings with growth in every sector, the bank said in a statement, with nearly three-quarters of the index’s market capitalization having reported.
The Federal Reserve has increased borrowing costs, a move aimed at reducing inflation. Some have feared this will drive the economy into recession—but not Goldman.
"Corporate financial results and management guidance indicate otherwise," Goldman Sachs analysts, including Chief Economist Jan Hatzius, said in the note. They claim that third-quarter revenues will continue to increase, along with investment.
Additionally, the hike in wages appears to be leveling off, the analysts said. Of the 88 Dow Jones companies that mentioned the labor market in their earnings reports, only one said shortages were getting worse. 35 companies said they were getting better.
"Thus far, Q2 earnings season has by and large been better than feared,” the statement said.
The earnings data should allow the Fed to hike interest rates again without fearing for the economy as they may have previously, the analysts said, adding that the pace of rate hikes will likely slow down, after late July’s second 75 basis point increase in two months.