- Equity Portfolio Manager
Portugal, Intermediary
ChangeThe views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
Is the equity market in “recession denial”? It seems like a crazy question to ask given that most markets are down this year – some evidence that many investors are concerned about the direction of the global economy.
Despite widespread fears about a recession this year, the stock prices of many cyclical businesses have experienced only modest drawdowns as of this writing. Amazingly, the stock prices of other companies (such as a large manufacturer of mining and construction equipment) are approaching all-time highs. Current consensus estimates for S&P 500 earnings call for 5% earnings growth in 2023. While this forecast has declined by a few percentage points over the past six months, positive earnings growth would still be quite an achievement in this environment and inconsistent with the slowdown US Federal Reserve (Fed) Chair Powell is trying to engineer.
In fact, if the S&P achieves the current consensus estimate in 2023, it will have delivered a compound annual earnings growth rate of 9% since 2019 (pre-COVID) – well above the long-term historical average and comfortably in the top quartile of rolling four-year periods over the last 50 years.
In a recent internal meeting, one of my fixed income colleagues commented that few of today’s market participants have lived through the type of tightening financial conditions the world is now in the midst of. In each prior instance of tightening of this magnitude, the global economy has experienced a significant slowdown. While each instance stands on its own and history is unlikely to perfectly repeat itself, I took that to mean we should be thinking about a wider distribution of potential outcomes for the economy (and, therefore, for markets as well). In the same meeting, two other colleagues highlighted the notable deterioration in some US economic indicators in just the last month.
Can the economy and markets really have enjoyed such a lengthy “party” since the 2008 global financial crisis, punctuated by a grand finale in 2020-2021, without suffering from any hangover at all? If corporate earnings were to materialize as described above, will inflation retreat to levels that are acceptable to the Fed? Current forecasts and asset prices seem to signal a belief that 2023 will not bring either materially higher interest rates or meaningfully lower earnings. I always tend to lean cautious, but this strikes me as an optimistic lens on the current set of circumstances.
Expert
Related insights
Showing
of
Insights Posts
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
Read next
Showing
of
Insights Posts
Concentrated markets: Implications for active management, manager research, and multi-manager capital allocation
Members of our Fundamental Factor Team share research insights on the portfolio impact of benchmark concentration and highlight tools that may help, including extension strategies, passive-share analysis, and index-completion approaches.
18
min
Whitepaper
2025-12-31
Equity Market Outlook
In our Equity Market Outlook, we offer a range of fundamental, factor, and sector insights.
Article
2025-12-31
Time to get active? 5 equity investment ideas for 2025
As we head into 2025, growth seems poised to accelerate, especially in the US. Equity Strategist Andrew Heiskell and Macro Strategist Nicolas Wylenzek see five themes that may create opportunity across global equity markets.
10
min
Article
2025-12-31
Scaling opportunities in a new economic era
Explore our latest views on risks and opportunities across the global capital markets.
Article
2025-12-31
Is your portfolio keeping pace with the changed outlook?
It's been an uncertain few years for investors, but looking ahead, we believe investors can expect a resilient economy, a solid outlook for growth and a positive environment for risk assets. What does a changed outlook mean for investors?
8
min
Article
2025-12-31
Navigating uncertain policy shifts
Macro Strategist Juhi Dhawan explains why investors should prepare for heightened volatility in 2025, due to significant policy changes under President-elect Trump that will impact inflation, trade, and economic growth.
8
min
Article
2025-11-30
Chart in Focus: Can this equity bull market last?
Can this current equity bull market last? In this latest edition of Chart in Focus, we focus on the indicators of whether it may come to an end or keep running.
3
min
Article
2025-11-30
What do declining European earnings mean for ECB policy?
European companies have been unexpectedly resilient over the last couple of years. However, the outlook for European earnings could be more challenging than headline numbers suggest. What could this mean for investors?
6
min
Article
2025-11-30
The power of local perspective: the long and short of European equity investing
Dirk Enderlein and Boris Kergall explain why, in their view, the structural changes impacting European equity markets offer active long/short investors a rich source of potential return and diversification.
7
min
Article
2025-10-31
Impact measurement and management: addressing key challenges
Our IMM practice leader describes common impact investing challenges and suggests ways to overcome them.
5
min
Article
2025-10-31
Quality growth — a less volatile sweet spot?
Growth stocks can be volatile, especially when companies fail to meet expectations. However, high-quality growth companies can help mitigate downside risk while still offering potential for long-term outperformance. How can investors find the sweet spot?
8
min
Article
2025-11-30
URL References
Related Insights
Equity Market Outlook
Continue readingBy
Andrew Heiskell
Nicolas Wylenzek