Consensus seems to be building for a tough 2023 first half (1H23) as the economy slows and corporate earnings continue to come under pressure. PE multiples will continue to contract as long as interest rates are rising.
Despite a very challenging 2022, as long-term (LT) investors we must ask ourselves does the next 6 months matter? Let's consider a few positives; the SP 500 may have bottomed already at 3500-it stands at 4000 today, some inflation indicators have rolled over, employment continues to be solid, supply chain issues are easing and year-over-year (YOY) capital spending came in at +20% through October.
On a longer-term basis it appears the Federal Reserve may be done raising rates by early Spring 2023 with a resulting tailwind to bond prices and demand for equities. The United Nations recently announced global population had reached 8 billion on its way to 10 billion by 2058. Historically the global economy and equity prices are driven over long periods by population growth and productivity.
In summary, with the SP 500 up nearly 15% off the mid-October low and tax loss season still going on we need to be careful about adding generically to equity exposure. We will however continue to look at individual sectors and companies that are bucking the trend and growing their earnings. As an example, we continue to overweight healthcare and financials which have worked to our benefit this year.
I hope you all had an enjoyable Thanksgiving weekend!
As always please email or call with questions, comments, or concerns.
Happy Holidays