Just two weeks of 2022 to go and the stock market mood remains grim. The latest burst of optimism, on further evidence that U.S. inflation continues to ease, has again evaporated.
Evidently, this scenario is unlikely to be good for global growth and company earnings. And consequently we face the relatively rare sight of analysts — usually a positive bunch — on average forecasting little gain for the S&P 500 SPX in 2023. “Remember: it’s not earnings per se that drive stock prices, but rather the market’s confidence in future earnings. That is why we started 2022 at 4,800. Markets had a high degree of confidence that the S&P could earn $225/$245 per share in 2022/2023 and put a 21x/20x multiple on those earnings. That was a bad call, obviously, but it does explain how powerful expectations can be in the capital market price setting process,” Colas says.
Colas has a caveat. “Interestingly, it is harder to make the case for S&P 4,800 if we do not see a U.S./global recession next year. If, for example, we manage to avoid an economic contraction next year then there will be little impetus for companies to right-size their cost structures. This, in turn, will limit earnings leverage in 2024. If markets can’t tell a decent story about earnings growth in the out year, they will be less likely to put a healthy multiple on future earnings in 2023.
The buzz As if market’s haven’t been stressful enough! Friday brings us “quadruple witching”, when four types of equity-linked derivatives expire. Goldman Sachs has calculated that options contracts tied to $4 trillion in stocks, stock-index futures and exchange-traded funds are set to conclude.
Certainly could, certainly couldn't. What are the odds though?
What if it doesn’t, can we get our money back from the analyst 😌