The Stock Market Looks Forward and It Sees Green

John Lui

The stock market and investors always look forward and they like what they see…

While central banks and the media look at stale lagging indicators in the rearview mirror, the market and long term investors invest by looking ahead thru the front windshield and things look good.

The chart below shows that the market/investors have been looking 6 months ahead as it always does.  The S&P 500 peaked in January 2022 (red line) 6 months before the S&P 500 earnings (black line) peaked.  The market factored in the earnings decline due to inflation, higher interest rates and softer economic growth.  The S&P 500 then bottomed in October of 2022 as it expects earnings to bottom and rise as it factors in the worse is behind us from inflation, higher interest rates and softness in the economy.

Earnings are about to accelerate…

The chart below shows Goldman Sachs’ S&P 500 earnings forecasts for 2023
and 2024. 2023 is flattish but 2024 is about to accelerate. As inflation
declines and pulls interest rates lower, the P/E (price earnings multiple) for
the S&P 500 will stop contracting and may even expand. Rising earnings with
stable/rising valuation is a very good combination for the stock market.

I discovered a new acronym recently…

TLDR

“Too long, didn’t read”. And so, this commentary is short and concise.
Enjoy your Memorial Day weekend and your summer vacation.

Sincerely,
John Lui