It’s not just US consumer optimism that recently hit all time highs (even if, as UMichigan explained last week, it was largely split according to party lines). According to a recent analysis by Bank of America, in the current earnings season which is gradually coming to a close, despite tepid guidance, “one read on corporate optimism is at a record high.”
As BofA’s Savita Subramanian writes, “guidance during 4Q earnings season is typically less positive than in other quarters as management sets a low bar for the year. While the ratio of above- vs. below consensus guidance has remained weak so far this month at 0.55, it is up from 0.44 in January and slightly above the post-2000 average of 0.48 for both months.”
And yet, while managements’ official outlooks may be nothing to write home about, commentary on earnings calls has been notably optimistic. A simple count of mentions of the word “better” relative to mentions of “worse” or “weaker” on earnings calls is tracking its highest in over two years. And the word “optimistic” has been used on a record 51% of the calls this quarter, the highest ever in our data history.
Ironically the incidence of record high “optimism” mentions took place just one quarter after it hit a record low.
And while on the surface, this is great news for the future as it suggests companies may finally redirect their spending away from buybacks and dividends and into corporate growth, hiring and capex, it also means that the threshold for disappointment is the lowest it has ever been, and the pressure on both Trump and the Fed to deliver an environment that satisfied America’s CEO has never been higher.