- Equity Portfolio Manager
United States, 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
Article
6 min
Taking stock of the energy shock: 9 macro and market insights
Continue reading
6 min
Article
2027-03-31
Article
4 min
The economy needs more competition. AI can make that happen.
Continue readingBy
4 min
Article
2027-03-25
Article
3 min
Chart in Focus: Diversifying for different macro regimes
Continue reading
3 min
Article
2027-03-27
URL References
Related Insights
Read next
Showing
of
Insights Posts
Article
6 min
Taking stock of the energy shock: 9 macro and market insights
Macro Strategist Juhi Dhawan looks at the potential effects of the war in the Middle East on economic growth, inflation, policy, and corporate profits.
6 min
Article
2027-03-31
Article
4 min
The economy needs more competition. AI can make that happen.
Brij Khurana believes that as AI evolves, it will challenge traditional business moats and revitalize competition across industries. This transformation could lead to increased productivity, higher real wages, and stronger economic growth.
By
4 min
Article
2027-03-25
Article
3 min
Chart in Focus: Diversifying for different macro regimes
Against the backdrop of heightened geopolitical uncertainty, our experts Alex King and Joshua Riefler explore how to optimise diversification across different macro regimes.
3 min
Article
2027-03-27
Article
4 min
A generational opportunity in publicly listed infrastructure?
What makes the current outlook for publicly listed infrastructure so compelling? For Portfolio Manager Tom Levering and Investment Director Joy Perry, the answer lies in strong demand dynamics, healthy return potential, attractive valuations — and burgeoning support from private capital.
4 min
Article
2027-03-31
Article
5 min
Reinforcing core equity: The fundamental third pillar
Allocators are rethinking their core equity exposure. A more deliberate, three-pillar approach, blending quant and fundamental, can help improve outcomes.
5 min
Article
2027-03-31
Article
5 min
The Fed’s growing footprint on the market has a cost
Brij Khurana explains what the Federal Reserve's balance sheet expansion may mean for inflation and asset prices.
By
5 min
Article
2027-02-26
Article
4 min
How to reposition equity portfolios for recurring AI disruption
With a growing range of industries hit by sell-offs, Multi-Asset Strategist Nanette Abuhoff Jacobson explores how to reposition equity portfolios for recurring AI disruption.
4 min
Article
2027-03-01
Article
3 min
Chart in focus: The long-term case for quality equity
Our equity experts highlight the resilience of quality equities despite recent setbacks, emphasizing their historical outperformance.
3 min
Article
2027-02-28
Article
6 min
European equities: time to reassess?
Many investors remain cautious on European equities, but Multi-Asset Portfolio Manager Supriya Menon and Lead Researcher Patrick Wattiau argue it is time to consider what could go right for European equities.
6 min
Article
2027-02-28
Article
4 min
Don’t stop believin’ in emerging market equities
Multi-Asset Strategist Nanette Abuhoff Jacobson explains why emerging market equities have become her highest-conviction view across asset classes.
4 min
Article
2027-02-28
Article
5 min
3 reasons to believe in Chinese equities
Macro Strategist Johnny Yu explores China's equity market resurgence, highlighting innovation, US-China relations, and policy shifts towards quality growth.
5 min
Article
2027-03-31
URL References
Related Insights