Two More Reasons This Bear Market Isn't Over

Goldman Sachs analysts Ben Snyder issued a letter to investors echoing a sentiment we share. In his note, he says the 2023 outlook for S&P 500 (NYSEARCA: SPY) earnings is...

By Thomas Hughes

MarketBeat.com - MarketBeat

This story originally appeared on MarketBeat

Goldman Sachs Says 2023 Outlook Too Optimistic

Goldman Sachs analysts Ben Snyder issued a letter to investors echoing a sentiment we share. In his note, he says the 2023 outlook for S&P 500 (NYSEARCA: SPY) earnings is too optimistic given the headwinds facing the economy. Even discounting the possibility of a recession, Mr. Snyder says the analyst's consensus for margins is usually too high and that is the best-case scenario in our opinion. The worst-case scenario is that margins will not improve appreciably across the broad market and earnings growth will be very tepid in 2023 if present at all. The takeaway is the analyst will most likely begin lowering their estimates for next year and that will add downward pressure to the stock market.

"Looking forward, analyst estimates show S&P 500 profit margins climbing to new highs in 2023," Snider said. "Despite tightening financial conditions, persistent input cost pressures, and slowing revenue growth, analysts continue to forecast a rise in profit margins next year."

The question is when will they begin lower those expectations and we think it may be soon. The outlook for earnings, in general, is very cloudy this year and that has led to an interesting trend. The consensus estimates for the Q1 and Q2 periods of 2022 held steady right up until the end of the preceding quarter, held there by hope, and then they fell under the weight of reality. If this trend continues, we expect to see the outlook for Q3 earnings begin to crumble over the next month and Q4 may fall with it. The expectation for the second half is for significant supply chain improvement and price stability, what we're looking at right now are ongoing supply chain issues and wildly out-of-control inflation.

Cathie Woods Says We're Already In A Recession, Duh

Cathie Wood echoed another sentiment we've developed over the past two months and that is we're already in a recession. In her view, the rapid increase in inventories this year, among other efforts to mitigate supply chain issues, has the market set up for a deflationary period and she may be right. What this means is a new age of discounting, tightening margins, and ultimately a contraction in GDP as retailers and wholesalers work to reduce inventory bloat.

Based on the data, we are already in a technical recession and are only waiting on the 2nd quarter GDP read to confirm it. The latest Leading Indicators came in at a new low of -0.4% and included a downward revision to previous data which suggests to us the 2nd quarter GDP will be worse than the 1st quarter. In this scenario, a soft landing looks highly unlikely and there is an important data point due out this week. The PCE price index is due out on Thursday and will confirm the need for aggressive FOMC action, the only question is how aggressive? As it is now, the FOMC is expected to hike rates by 75 basis points at each of the next two meetings.

The Technical Outlook For The S&P 500 Is Unchanged

The S&P 500 bounced from the 3,650 level in what began as a strong move but the bear market rally is already lower. The index has found resistance at the short-term moving average and coincident with the mid-point of a downtrending channel. In our view, this is a significantly bearish development that has the index set up to retest the recent lows if not set new ones. A move below 3,650 will open the door to our next target at the 3,400 level and potentially to a full retracement of the COVID-19-induced rally in stocks.
Two More Reasons This Bear Market Isn't Over

Related Topics

Editor's Pick

Everyone Wants to Get Close to Their Favorite Artist. Here's the Technology Making It a Reality — But Better.
The Highest-Paid, Highest-Profile People in Every Field Know This Communication Strategy
After Early Rejection From Publishers, This Author Self-Published Her Book and Sold More Than 500,000 Copies. Here's How She Did It.
Having Trouble Speaking Up in Meetings? Try This Strategy.
He Names Brands for Amazon, Meta and Forever 21, and Says This Is the Big Blank Space in the Naming Game
Leadership

How to Detect a Liar in Seconds Using Nonverbal Communication

There are many ways to understand if someone is not honest with you. The following signs do not even require words and are all nonverbal queues.

Starting a Business

Ask Marc | Free Business Advice Session with the Co-Founder of Netflix

Get free business advice during our next Ask Marc, live Q&A, on 3/28/23 at 3 p.m. EDT. You don't want to miss it—send in your questions now.

Leadership

5 Ways to Successfully Encourage, Empower and Engage Your Team

Here are five simple things leaders can do to build strong teams.

Business News

American Airlines Sued After Teen Dies of Heart Attack Onboard Flight to Miami

Kevin Greenridge was traveling from Honduras to Miami on June 4, 2022, on AA Flight 614 when he went into cardiac arrest and became unconscious mid-flight.

Business News

The 'Airbnbust' Proves the Wild West Days of Online Vacation Rentals Are Over

Airbnb recently reported that 2022 was its first profitable year ever. But the deluge of new listings foreshadowed an inevitable correction.

Leadership

How This Entrepreneur Went Global Without VC Funding

The founder of Luminary shares why she wanted to control her own destiny and her advice for women who want to build their own sustainable and profitable business.