The deeper the recession, the deeper the earnings decline will be. Even in China??
🎧💡 #14 Macro & Business Insights
Hi all, and welcome back to The Macro & Business Insights!
What you’ll find in this episode:
Why economic growth will reflect inevitably on companies’ earnings
Earnings remain correlated to economic growth; earnings decline as rate hikes ensue
In China the scenario is more dovish and in 2023 the China’s economy should growth of 3.3%
Economic Recessions Leads to Earnings Recessions
As we’re entering in a new year “2023”, the economic scenario is preparing for a suffering year and the outlook for the new year is not good.
In fact for the entire year, we should have no economic growth and a modest decrease in inflation rate.
As we know when we don’t have economic growth this will reflect inevitably on companies’s earnings.
In this research let’s will focus on the earning’s trend.
This trend has contained earnings growth since 1950.
Currently, earnings estimates exceed that trend by one of the most significant deviations ever.
The deeper the recession, the deeper the earnings decline will be.
Monetary policy conditions index…
I love this chart, look it another time and another one. I really thank Real Investment Advice for this one.
Is incredible how you can understand immediately how monetary conditions impact on S&P 500.
While the U.S. economy has absorbed tighter financial conditions so far, it doesn’t mean it will continue to do so. History is pretty clear about the outcomes of higher rates, combined with a surging dollar and inflationary pressures.
Monetary policy conditions index inverted – What happened?
While periods of high volatility eventually subside, the bearish period for stocks is ultimately tied to the monetary conditions present in the economy at the time.
If we invert our monetary conditions index and compare it to the annual changes in the price of the S&P 500 index, the correlation becomes apparent.
This is not true for the Chinese markets, which we are witnessing more dovish monetary policy
The MSCI China Index is up 24% thus far in November, compared to just 2% for the S&P 500 Index.
This surge in Chinese stocks has propelled outperformance of emerging markets.
Yet, the potential reopening poses upside risk to inflation just as central banks appear to be stepping down their rate hikes.
China's reopening may be like most other countries' reopening experiences, with economic growth accelerating (especially household consumption) and inflation picking up.
Any reopening beginning in March or April is likely to be gradual but could still lead to a surge in pent up spending in the world's second largest economy.
1.4 billion consumers could lead to a rebound in global inflation for both commodities and goods.
As China moves toward reopening, stocks seem to be welcoming the likely boost to global economic growth but may begin to worry over the potential need to extend rate hikes.
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Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.