U.S. earnings recession fades but Wall Street is expensive

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For those investors with a multi-year horizon, Wall Street’s growth potential and appeal relative to Treasury debt may dim considerably if borrowing costs don’t return to recent historically low levels

A U.S. earnings recession that was consensus thinking only a few months ago has evaporated out of view which, on the face of it, should be a tailwind for Wall Street into next year.

This would be the worst quarter in three years but not part of a technical recession – first-quarter growth was a slender 0.1 per cent and third-quarter estimates are around 1 per cent. “2024 earnings estimates have held up pretty well, we’re at high levels now,” notes Howard Silverblatt, senior analyst at S&P Global. “You are paying a nice premium here. Hopefully it’s worth it.”

That’s the broad conclusion of a paper last year by Robeco’s head researcher David Blitz, who analyzed equity risk premia across a range of countries from data that goes back more than 120 years.

 

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