Throw away Your Past Winning Investment Strategies; World Bank Report said
The World Bank’s latest report forecasts global growth to retract in 2023 to 1.7% from 2.9%, noting the challenges of ongoing tightening of monetary policy to curb inflation and the impacts of the Russian/Ukrainian conflict.
The report also highlighted the significantly weaker prospects for advanced economies, which is unlikely to be the source of global growth in 2023.
Q4 Earnings Season
Fourth quarter earnings season is now under way and analysts are expecting 7 sectors to report an annual decline in earnings.
Companies are now beginning to cut costs (mainly via job cuts) so when the earnings recession does end it may be due to lower costs rather than rising sales - ie. earnings may improve before the economy does due to cutting costs.
The current P/E ratio for the US market of 23.8x looks low relative to its average of 33.1x over the last 3 years, but that will change if estimates continue to decline (all else being equal).
So the trend in earnings and interest rates is likely to overshadow valuations until it starts to turn.
The next few years could be a very different investing environment
Howard Marks’ recent “Sea Change” memo outlined how we might be in for a new investing environment over the next few years, where the winning strategies of the past decade may not apply anymore.
Low inflation and declining interest rates have been the major factor contributing to strong equity returns over the last four decades. We may now be entering a period where rates are higher on average and no longer persistently declining.
P.S.
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