Recession worries resurface

The cover of this week’s Economist summarizes the worries driving the November correction in the stock market. The only problem is they have the causation backwards—falling stock prices do not trigger recessions, but recessions do trigger large drops in stock prices.

So, is there a recession on the way?

Not according to the Atlanta Federal Reserve Bank, which has a great track record when it comes to predicting the economy. Take a look at the latest prediction below: 4.1% growth for the current quarter. The green line in the chart below shows how their prediction for the current quarter has evolved since the summer. Almost double their first estimate in July.

But is 4% growth a good number? It sounds so small!

The chart below says it is very good. We haven’t seen 4% GDP growth since the late 1990s.

The US government shutdown has encouraged the worrywarts. Lack of government data on jobs, layoffs, and retail sales has increased concern about our economic future.
We look forward to the government’s Retail Sales report, but we aren’t flying blind. Below are comments from three important companies on consumer spending, the primary driver of economic growth.

“So we see solid spending across affluent and mass markets as well.” – Mastercard

“We referred to the consumer as ‘resilient’ in Q4. We’ve used that word throughout the course of 2025.” – Visa

“In the U.S., we saw strength across income cohorts and especially with higher-income households.” – Walmart

Again, these are comments from these companies on the health of the US consumer.

The punchline: no recession in sight.

Of course, our main concern is the stock market, not the economy. Below is a chart showing massively positive earnings (profit) growth in the latest quarterly reports.

And here’s a close-up of S&P 500 profits in the last 12 months. This is not what profits look like just before a recession.

And these strong numbers were confirmed by Nvidia’s report on Wednesday, which showed over 50% growth in earnings.

But is the market ahead of itself? The S&P 500 is up 13% for the year, and as the following chart shows, so are profits. This table reports profits as Earnings per Share – EPS.

Only one sector suffered lower profits–Energy. Technology profits are up 25% (good news for Dock Street clients), and again, the S&P 500 profits were up over 13%. Analysts had expected 6%.

So no recession in the US, and earnings (profits) up double digits. That means the current weakness in the stock market is a normal correction, not the beginning of a bear market.

Best regards,

Daniel A. Ogden

 

Disclosure: Dock Street Asset Management, Inc. and/or our clients may own Nvidia (NVDA), Visa (V), Mastercard (MA), and Walmart (WMT). This article is not intended to be used as investment advice.