January 2023 Outlook — Inflation/Fed Cycle Lingers Longer & Patience Needed

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 15-17x my 2024 OEPS estimate.  Both my earnings and valuation base cases are potentially subject to change. 
  • My next S&P 500 target is my longstanding range of 3200-3000 before 3Q23, and my base case year-end forecast is 3300-3740.
January 2023 Outlook — Inflation/Fed Cycle Lingers Longer & Patience Needed

Outlook Details

  • Brian’s full sector update report will be available shortly.
  • Outlook Slide Deck is available here
  • In case you missed Brian’s 2023 Outlook Webinar, the replay will be available shortly here

Disclosures (show)

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