A recent report from LPL Research that tracks sentiment in corporate earnings call transcripts, posted some positive conclusions. The firm counts variations of “strong” words such as robust, solid, and optimistic as well as “weak” words like soft, fragile, and pessimistic. Observations from past quarters are compared and trends become established.
Corporate Optimism
The overall ratio of strong to weak words has been on a steady climb since early 2015. Optimism can also be visualized in the decline in recession talk. LPL noted:
"Corporate executives generally try to stay away from the “R” word (recession) when talking with investors, confirmed by the small number of mentions of the word over the past several years. But the second quarter took that to a new, low level with just three mentions versus the quarterly average of nine since the first quarter of 2015. This data point, combined with our assessment of leading economic indicators, continues to point to low recession odds over the next year"
Focus on Washington Has Faded
As seen in the figure above, discussion regarding the Trump Administration has been fading. Words such as tax, infrastructure, trade, and regulations have all fallen significantly. Corporations obviously still see importance in these policies, but seem to be losing hope in achievement of various reforms. A hotel executive commented:
"We continue to be cautiously optimistic that the stage is set for economic expansion. Offsetting that is a general uncertainty with respect to government policy, and economic initiatives, which may be putting a slight damper on corporate outlooks."
