The Market has started the year off fairly well, as it does in most years, especially those following high levels of tax harvesting. But can the euphoria hold? I don’t think so, for many reasons, but primarily because corporate profits are deteriorating.
The attached chart is busy, and will be the subject of many future podcast episodes. Note the following-
- S&P 500 declines along with Earnings.
- Profits soared over the past 14 years primarily driven by cheap & easy monetary policy.
- Earnings can decline rapidly in a recession.
- Price/Earnings Ratio was the lowest during Energy Crisis (1970s) & final state of the Cold War (1980s)
The 2023 situation is-
- Earnings are declining.
- Era of cheap money negative interest rates is likely over.
- Leading economic indicators have been deteriorating since Sep/Oct forecasting a recession.
- Cold War II is mounting-
- Ukraine Invasion Energy Crisis.
- Technology sanctions on China likely restraining future global trade.
I believe that the short term upside to the S&P 500 is very limited and that capital is better placed in money market funds, now paying very favorable interest rates.
Stay tuned…new opportunities will emerge.
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