Topline: Recession fears are again on the rise, with the vast majority of chief financial officers bracing for an economic downturn in 2020—and historical data shows that trends of declining optimism among America’s financial executives can sometimes be a harbinger for looming market sell-offs.
What to watch for: It’s important to remember that CFO sentiment, which helps give insight into business and consumer spending, is primarily an indicator of economic activity—rather than stock market behavior.
Crucial quote: “While as a stand-alone they don’t offer much insight, it’s most helpful to look at these surveys hand-in-hand with hard economic data,” says Mark Freeman, chief investment officer at Socorro Asset Management. “What really matters is the extent to which sentiment potentially translates into CFO behavior—that has earnings implications, and that does matter to the market from a fundamental standpoint.”
Tangent: Nearly two thirds of CFOs surveyed by Deloitte said that U.S. economic performance beyond 2020 will “depend substantially” on the outcome of the elections, while trade policy remains CFOs’ “most worrisome external risk.” Respondents also cited falling expectations for two key measures of the economy: Consumer sentiment, which has largely held steady so far, and business spending, expectations for which hit a three-year low. More than 80% of CFOs also said they had already taken at least one defensive action to mitigate against a potential downturn, as evidenced by their growing focus on cost reduction and returning cash.