How to find out if the bear market is at rock bottom, according to the pros
After the worst first half year for US stocks in decades, a big upswing last week led to some optimism that the worst of the sales may be behind us – but not everyone is convinced. It may not be surprising that market watchers are reluctant to call the bottom line brutal sales, but there is one indicator that many strategists say is the key: earnings audits. Trevor Greetham, head of multi-asset in Royal London Asset Management, says that a “earnings recession”[ads1]; is coming, which he expects will “drag out for quite some time”. “Earnings are the next problem … This rally may last a little longer, but do not think this is the end of the bear market,” CNBC “Squawk Box Europe” said on Monday. Morgan Stanley also closely monitors earnings audits. “Stock markets tend to decline 2-3 weeks before earnings audits bottom, but the latter have not even turned negative yet,” Morgan Stanley’s European strategist, led by Graham Secker, noted on Monday. In a separate note on US equities, the bank noted that the decline in the S&P 500 last week was due to higher valuations – an “unusual” phenomenon given the growing concern about earnings. “Falling interest rates and lower oil prices have lowered the terminal interest rate for the Fed. Whether this is bullish or bearish depends on one’s interpretation. Last week, the market took the bullish view that may last a few weeks before the reality of lower earnings comes. And the bear market resumes,” he said. strategist Michael Wilson. Read more With the fear of the recession increasing, UBS dives into the history books to predict what might happen. These global stocks look oversold – and analysts expect a rise. MSCI Europe may be in the later stages of a downgrade of the valuation. The price decline from top to bottom still looks quite modest compared to previous downturns. This is due to earnings estimates that have continued to rise so far this year despite the sharp fall in share prices, Secker explained. “However, we do not expect this divergence to last much longer and see a strong chance that the economic news flow will worsen over the next few months, which should put downward pressure on [gross domestic product] and [earnings per share] forecasts, “he added. How low can earnings go? In a note entitled” Earnings: how low can they go? “UBS also emphasizes the importance of earnings, although it takes a slightly more optimistic tone.” With S&P 500 P / E down [around] 6x YTD, how much earnings will fall is a key debate “, wrote the bank’s strategists, led by Keith Parker, last week. It added that the underlying scenario for the United States is “declining growth, but no recession.” The bank estimates earnings per. share (EPS) of $ 235.50 and $ 250 for the S&P 500 for 2022 and 2023, respectively, which they believe are “achievable.” This compares with $ 186.60 in 2021, according to FactSet data. However, strategists stressed that “risks are to the downside.” The bank has an “implied EPS change indicator” which it says remains positive, and points to further upgrades. “S&P 500 implicit revisions over the next 8wk remain positive. Energy, Utilities and REITs have the highest implied EPS revisions at sector level. Transport and banks lead IGs [investment grade]”The analysts wrote. The bank said its indicator had been a” useful signal “during periods of market weakness and earnings downgrades, including the stock market crash from 2008 to 2009.
