24/7 Wall St.

Former Federal Reserve Chair Alan Greenspan’s famed quote about “irrational exuberance” stuck with many investors when he said it back in the 1990s during the dot-com bubble. In a sense, this quote carried with it some caution to brace for what’s ahead. The 10-year bull market fading has brought up similar questions, and analysts at Gartner think they can answer them.

Analysis of S&P 500 2018 earnings transcripts shows fading exuberance among corporate executives as the year progressed, according to Gartner. Several sectors are undergoing an earnings recession, and efficiency and restructuring initiatives are increasingly common.

The firm believes that S&P 500 company executives are more concerned about the risks and uncertainty from government interventions rather than suspecting any global macroeconomic downturn in the near term. At the same time, talk of capital and cost-efficiency programs was increasingly common in earnings calls as 2018 progressed.

Tim Raiswell, vice president at Gartner’s finance practice, commented:

Mentions of the words ‘downturn’ and ‘slowdown’ were four times more likely to appear in earnings call in 4Q18. Yet it’s important to consider that 4Q18 brought relatively extreme drops in stock prices. After 10 years of economic expansion, it’s not surprising to see analysts asking company executives about their preparations for cyclical economic weakness.

On the other hand, most executives have remained optimistic about the U.S. economy in 2019. The companies most exposed to China were more likely to report demand weakness in 2018 or predict it occurring in 2019. Sentiment was particularly positive in the technology and communications sectors.

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On the domestic front, common U.S.-related concerns included the recent government shutdown, tariffs and trade policy uncertainty. Worldwide political issues cited were Brexit and the fractious political landscape within the eurozone, as well as concerns in the Middle East and in South America.

Raiswell added:

While many economists suspect that the next U.S. recession will take a different form than the financial liquidity crisis of 2009, there should be concerns among CFOs and treasurers that this growth of nonbank lending poses a risk to the U.S. financial system. Nonbank portfolios tend to be built on higher-risk loans to low-income clients. A combination of this phenomenon and any future easing of banking and lending regulations could spell trouble for the global economy in the next few years.