In contrast to the market consensus of a 5 per cent increase, it anticipates 2023 global earnings growth to fall by 3 per cent. Next year, it expects global earnings growth to turn negative.
FREMONT, CA:Stock prices have dropped significantly, the S&P 500 is down 22 per cent this year, while the MSCI All-Country World Index is down 24.5 per cent. But there will not be a lasting improvement any time soon. The market's risk-reward outlook has turned negative in the near term due to a confluence of ongoing inflation, rising rates, declining GDP expectations, and increased financial stress. In contrast to the market consensus of five per cent growth, global earnings growth will turn negative the following year and decline by three per cent in 2023.
However, people continue to believe that until 2023, a more supportive environment for riskier assets should emerge, and the longer-term return outlook for diversified investors is generally positive. Determining that investors can still profit from an improved risk sentiment farther out, they have altered holdings to assist protect portfolios against increased risks in the near term.
The Outlook for the S&P 500 has Deteriorated:The MSCI US index is still valued at 15.6x, or a 17 per cent premium to the global benchmark, even though the 12-month forward price/earnings ratio of the MSCI All Country World index has corrected from a post-pandemic high of approximately 20x to 13x at this time, below the long-term average of 14.5x. Should inflation continue to surprise on the upside or if growth disappoints, they see room for additional valuation compression in the US. The profit forecast is also worsening, and we now project a 4.4 per cent decline in S&P 500 earnings per share in 2023.
This does not rule out the possibility of periodic rallies, which are sparked by small improvements in inflation or labour market data, any dovish shift in the Fed's tone, signs of economic resilience, a reduction in major risks, or even just changes in market sentiment as participants try to predict when inflation, rates, or growth might turn.
Since the start of the year, global tech stocks have lagged behind global equities. It continues to continue failing value in this environment of increased rates and declining demand. While earnings downgrades in the tech sector are possible, the value gap between IT and the benchmark is still wide.
