- Equity Portfolio Manager
Singapore, Intermediary
Change
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
Is the equity market in “recession denial”? It seems like a crazy question to ask given that most markets are down this year – some evidence that many investors are concerned about the direction of the global economy.
Despite widespread fears about a recession this year, the stock prices of many cyclical businesses have experienced only modest drawdowns as of this writing. Amazingly, the stock prices of other companies (such as a large manufacturer of mining and construction equipment) are approaching all-time highs. Current consensus estimates for S&P 500 earnings call for 5% earnings growth in 2023. While this forecast has declined by a few percentage points over the past six months, positive earnings growth would still be quite an achievement in this environment and inconsistent with the slowdown US Federal Reserve (Fed) Chair Powell is trying to engineer.
In fact, if the S&P achieves the current consensus estimate in 2023, it will have delivered a compound annual earnings growth rate of 9% since 2019 (pre-COVID) – well above the long-term historical average and comfortably in the top quartile of rolling four-year periods over the last 50 years.
In a recent internal meeting, one of my fixed income colleagues commented that few of today’s market participants have lived through the type of tightening financial conditions the world is now in the midst of. In each prior instance of tightening of this magnitude, the global economy has experienced a significant slowdown. While each instance stands on its own and history is unlikely to perfectly repeat itself, I took that to mean we should be thinking about a wider distribution of potential outcomes for the economy (and, therefore, for markets as well). In the same meeting, two other colleagues highlighted the notable deterioration in some US economic indicators in just the last month.
Can the economy and markets really have enjoyed such a lengthy “party” since the 2008 global financial crisis, punctuated by a grand finale in 2020-2021, without suffering from any hangover at all? If corporate earnings were to materialize as described above, will inflation retreat to levels that are acceptable to the Fed? Current forecasts and asset prices seem to signal a belief that 2023 will not bring either materially higher interest rates or meaningfully lower earnings. I always tend to lean cautious, but this strikes me as an optimistic lens on the current set of circumstances.
Expert
Related insights
Showing
of
Insights Posts
2023 Asia Pacific Investment Forum: Restrategise for an altered macro regime
Continue reading
Event replay
2024-03-31
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
Read next
Showing
of
Insights Posts
2023 Asia Pacific Investment Forum: Restrategise for an altered macro regime
At our 2023 Asia Pacific Investment Forum, a multidisciplinary group of Wellington’s specialists shared their unique perspectives on how to re-strategise for 2023 and beyond.
Event replay
2024-03-31
The allocator’s perspective: three key decisions on EM equities
How can investors best access opportunities within an improving outlook for emerging market equities? Natasha Brook-Walters, co-head of iStrat, shares three key decision points for allocators.
Article
2024-03-31
Monthly Market Snapshot — February 2023
A monthly update on equity, fixed income, currency, and commodity markets.
Whitepaper
2023-05-15
Thematic investing focus: The education imperative
Education is poised for transformation — and set to see a decade of spending and growth we believe will be unmatched by any since the post-World War II boom.
Article
2024-03-31
India: Structural tailwinds for 2023 and beyond
Following his recent trip to India, Macro Strategist Tushar Poddar shares why he's very positive on the country's medium- to longer-term structural outlook.
Quick Take
2024-03-31
European equities: a complex story
Macro Strategist Nicolas Wylenzek examines the complex prospects of European equities from both a near-term and structural perspective.
Quick Take
2024-02-29
Monthly Market Snapshot — January 2023
A monthly update on equity, fixed income, currency, and commodity markets.
Whitepaper
2023-05-15
Fintech regulation: Geopolitics, ESG, and crypto
Discover how fintech’s growing role as a national strategic imperative impacts regulations, the effect of ESG on regulation, and the specific need for regulation in crypto markets.
Article
2024-02-29
Why investing in themes for EM equities may reap rewards
Portfolio Manager Dáire Dunne outlines why he is increasingly optimistic about the potential opportunities within select EM equity themes this year.
Article
2024-02-29
Financial Market Review — Fourth quarter 2022
A quarterly update on equity, fixed income, currency, and commodity markets.
Whitepaper
2023-07-15
Monthly Market Snapshot — December 2022
A monthly update on equity, fixed income, currency, and commodity markets.
Whitepaper
2023-03-15
URL References
Related Insights