Dear Investors,
As we’re entering in a new year 2023, the economic scenario is preparing for a suffering year and the outlook for the new year is not good.
In fact for the entire year, we should have no economic growth and a modest decrease in inflation rate.
As we know when we don’t have economic growth this will reflect inevitably on companies’s earnings.
In this research let’s will focus on the earning’s trend.
This trend has contained earnings growth since 1950. Currently, earnings estimates exceed that trend by one of the most significant deviations ever.
The only two previous periods with similar deviations are the Financial Crisis and the Dot.com bubble.
The deeper the recession, the deeper the earnings decline will be.
The whole point of the Fed hiking rates is to slow economic growth, thereby reducing inflation. As such, the risk of a recession rises as higher rates curtail economic activity. Unfortunately, with the economy slowing, additional tightening could exacerbate the risk of a recession.
Therein lies the risk. Since earnings remain correlated to economic growth, earnings decline as rate hikes ensue.
Such is especially the case in more aggressive campaigns.
Therefore, market prices have likely not discounted earnings enough to accommodate a further decline.
And finally, let’s even will see how this don’t impact enterally the Chinese market, which we are witnessing more dovish monetary policy than in the US.
We’ll touch how retail consumer spending in China is evolving over the years, remembering that in 2023 the China’s economy should growth of 3.3%.
Monetary policy conditions index…
I love this chart, look it another time and another one. I really thank Real Investment Advice.
Is incredible how you can understand immediately how monetary conditions impact on S&P 500.
While the U.S. economy has absorbed tighter financial conditions so far, it doesn’t mean it will continue to do so.
History is pretty clear about the outcomes of higher rates, combined with a surging dollar and inflationary pressures.”
The “monetary policy conditions index” measures the 2-year Treasury rate, which impacts short-term loans; the 10-year rate, which affects longer-term loans; inflation which impacts the consumer; and the dollar, which impacts foreign consumption.
Historically, when the index has reached higher levels, it has preceded economic downturns, recessions, and bear markets.
Not surprisingly, the tighter monetary policy conditions become, the slower economic growth tends to be.