Executive Summary

From current levels, our work suggests that the strategic reward/risk tradeoff for the S&P 500 is still tilted towards risk, but with a high likelihood that 2023 will mark the ultimate bear-market low for equities.  With that being said, my research says it will not be easy, and 1H23, at least, will be a hard-fought tug-of-war between Doves/Bulls and the Hawks/Bears.  Patience will be needed, as well as a steely resolve to shift towards opportunity once the challenging backdrop is overly discounted. 

Conclusions

  • U.S. begins 1H23 a laggard vs. The World.
  • Bonds over Stocks during 1H23.
  • Barbell approach Defensive Growth and select Offensive Growth relative to Value.
  • Overweight High quality vs. Low quality.
  • Although there will likely be periods when Beta/Macro outperform during 2023, my research suggests stock picking (Alpha) continues to slowly become more important.

Key Points

  • I am estimating a 5-10% decline in S&P 500 OEPS for 2023 with risk to the downside and will be assuming a middle-range number of $210 for the year.  For 2024, I am forecasting 2-6% growth over the final 2023 result with risk to the upside, which makes my central tendency estimate for OEPS $220.
I expect the S&P 500 forward P/E multiple to be 15...

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