Tightening financial conditions by third quarter 2023, will lower the S&P 500 price-to-earnings ratio and result in an earnings per share (EPS) recession later this year. We view this bullish call as just a strong rally within a sideways, range-bound secular bear market. We expect stock markets to continue to rally another five per cent to seven per cent from current levels for the next three to six months, led by cyclical growth stocks (especially the technology vendors).
Federal Reserve monetary policy pause is on the horizon, which will be supported by steadily lower inflation. Your BSD team believes there is a significant probability that an imminent U.S. Market participants will also focus on individual business forecasts so as to revise future estimates. This would follow the 5.4 per cent decline in the preceding period’s earnings (fourth quarter 2022) on 5.8 per cent higher revenues. Total S&P 500 earnings for the first quarter of 2023 are expected to be down 9.4 per cent from the same period last year on 1.8 per cent higher revenues.
With that uncertainty, is it any surprise that the S&P 500 is sandwiched right between its 50 and 200-day moving averages? In the near term, the next major stock market moving catalyst will come from the 2023 first-quarter earnings season. Think about it, how often is it that credible arguments can be made for any of those three decisions? There is uncertainty regarding how the bank crisis will play out and whether the Federal Open Market Committee’s next move will be a rate hike, a rate pause, or a rate cut.
Investors can’t seem to make up their minds as to where stocks should go from here. Kim Bolton, president and portfolio manager at Black Swan Dexteritas
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