Recession fears are growing on Wall Street after the release of disappointing U.S. economic data and a global market sell-off that led to the biggest one-day drop in the Japanese Nikkei 225 going back to 1987. But how real is that risk? Much depends on where you guess the economy is going: There is not a necessary relationship between earnings and U.S. GDP growth , but 2% GDP growth is often associated with earnings growth of 6%-10%.
The current scenario, where we are now, has 2025 earnings growth at 15%, with a multiple of 19.1. The S & P 500 is at roughly 5,346 . First forward scenario: Let's start with a bullish assessment: GDP remains at roughly 2% and international markets are stable. In that case, even if earnings expectations drop to 10% from 15%, the forward multiple is unlikely to slip into recession territory.
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