What we’re reading (9/12)
“Sliding Earnings Forecasts Pose Next Test For Markets” (Wall Street Journal). “Analysts have cut their estimates for third-quarter earnings growth by 5.5 percentage points since June 30, according to John Butters, senior earnings analyst at FactSet. That is more than usual and marks the biggest cut since the second quarter of 2020, when the Covid-19 pandemic and ensuing lockdowns brought economic activity to a standstill.”
“Tuesday’s Inflation Report Could Show Prices Moderating As Gasoline And Travel Costs Fall” (CNBC). “The consumer price index will be released Tuesday at 8:30 a.m. ET, and the report could be a bit messy since headline inflation is expected to fall while core inflation, excluding energy and food, should rise. The report is also key because it is expected to influence the Federal Reserve’s decision on how much to raise interest rates next week — and more importantly, in the long term.”
“Is Physical Climate Risk Priced? Evidence From Regional Variation In Exposure To Heat Stress” (Viral Acharya, et al., NBER Working Paper). “We exploit regional variations in exposure to heat stress to study if physical climate risk is priced in municipal and corporate bonds as well as in equity markets. We find that local exposure to damages related to heat stress equaling 1% of GDP is associated with municipal bond yield spreads that are higher by around 15 basis points per annum (bps), the effect being larger for longer-term, revenue-only and lower-rated bonds, and arising mainly from the expected increase in energy expenditures and decrease in labor productivity. Among S&P 500 companies, one standard deviation increase in exposure to heat stress is associated with yield spreads that are higher by around 40 bps for sub-investment grade corporate bonds, with little effect for investment grade bond spreads, and with conditional expected returns on stocks that are higher by around 45 bps.”
“The Forthcoming Rate Of Economic Growth?” (Marginal Revolution). “As Brad DeLong stresses, the second Industrial Revolution starting about 1870 was the true one, and we woke up fifty years later to an entirely different world, based on electricity and consumer society and extreme physical mobility. Yet I am not aware of any extreme gdp or productivity stats during the intermediate period. In fact the numbers I have seen seem a little….mediocre. I say side with the reality, not with the numbers, but this is one of the questions I wish was studied much more. Is it simply the case that stringing together a series of qualitatively discrete changes inevitably will outrace our ability to measure it?”
“Goodbye, Globalization?” (Daniel Drezner, Reason). “To understand the intellectual roots of today's resistance to free markets, the book to examine is Karl Polanyi's The Great Transformation. Polanyi, writing in 1944, wanted to understand how the world had arrived at a low moment of depression, fascism, and war. Where writers like F.A. Hayek saw socialism's rise as a tragic result of state interference in free markets, Polanyi viewed it as the ineluctable backlash against those same markets' volatility.”
