Corporate America is trying to tell us something about the economy, top analyst says: A 3-year recession for ‘much of the private economy’ ended in April

Core Insights - A top Wall Street analyst suggests that the current earnings season validates the thesis of a "rolling recovery" in the economy, indicating that the "rolling recession" is retreating into the past [1][2] Group 1: Economic Context - The U.S. private sector has experienced a "rolling recession" during the pandemic, characterized by a prolonged downturn that did not reflect in headline GDP but affected hiring, earnings, and confidence [2] - The current earnings season shows revenue "beat" rates more than double historical averages, with median stock earnings growth reaching its fastest pace since 2021 [2] - The S&P 500's collective revenue surprise stands at 2.3%, compared to a historical norm of 1.1%, indicating stabilization and firming top-line momentum [2] Group 2: Earnings Recovery - The third quarter of 2023 marks the end of one of the longest earnings recessions on record, with median stock earnings growth among the Russell 3000 hitting 11%, up from 6% in the previous quarter [3] - Earnings revisions made a "V-shaped" recovery in April, which is seen as an inflection point for the economic cycle [3] Group 3: Cost Structures and Profitability - Companies have significantly leaner cost structures due to rightsizing during the downturn, with wage expenses decreasing in growth rate terms [4] - The reduction in excess labor costs during the rolling recession has aligned wage expenses with profitability, positioning businesses to benefit from top-line improvements [4] - A slight firming in top-line performance and pricing power is expected to lead to greater bottom-line leverage due to restrained costs [4]