- Equity Portfolio Manager
United States, Intermediary
Change
The 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
The power of local perspective: the long and short of European equity investing
Continue reading
7
min
Article
2025-10-31
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
Read next
Showing
of
Insights Posts
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
Unlocking the full value potential of stewardship
Yolanda Courtines and Alex Davis examine how corporate stewardship can be a source of value and delve into what investors can do practically to maximise its full potential.LDI Team Chair Amy Trainor explains why she believes a pension risk transfer may, in many cases, not be the best choice for fully funded plans from a cost/benefit standpoint.
5
min
Article
2025-10-31
Decoding impact expectations: best practices for impact investors and companies
We share three recommendations each for impact investors and companies to help them better understand and manage each other's expectations.
6
min
Article
2025-10-31
Strong fundamentals, attractive valuations: Why the time may be right for active biotech investing
From solid fundamentals to supportive macro conditions, learn why our biotech experts believe the industry may be ready to run.
8
min
Article
2025-10-31
Navigating AI resource demands: Strategies for sustainable data center operations
AI's growing computational demands are raising critical questions about energy efficiency and water-resource management. We delve into strategies for enhancing sustainable data center operations, highlighting the importance of proactive resource stewardship.
10
min
Article
2025-10-31
What is “the economic cycle,” anyway?
See why the relationship between asset prices and the economic cycle is more complex than you might think, why a US recession is unlikely, and what a more dovish Fed could mean for the US and global markets.
5
min
Article
2025-10-31
Japan’s factory automation sector: Poised for a significant upturn?
Global Industry Analyst Takuma Kamimura explains why he believes we’re on the verge of a multiyear cyclical upturn in the factory automation sector and why he sees a compelling outlook for select Japanese companies in particular.
5
min
Article
2025-10-31
URL References
Related Insights
Chart in Focus: Can this equity bull market last?
Continue readingMultiple authors