Market Commentary - January 2023

For your convenience, below are a few summary highlights from our Investment Strategy Group’s Quarterly Market Commentary for January 2023:

1. US equities will likely remain volatile, but somewhat rangebound, in the first half of 2023. Investors await further clarity on how much the Fed’s aggressive monetary policy has slowed the economy and corporate earnings. Many economists expect a mild recession this year or next, but we believe a “soft landing” is still possible if inflation continues to moderate and the Fed pauses rate hikes in March.
2. Equity valuations declined sharply over the course of 2022, with the S&P 500’s forward price-to-earnings (P/E) multiple now 16.7x vs. 21.4x one year ago. The current multiple is close to the long-term average since 1990, which could provide support for equity prices in the near term. However, if corporate earnings estimates continue to trend lower, the current P/E could prove understated.
3. Corporate earnings estimates have adjusted meaningfully lower since last summer. Wall Street analysts now project S&P 500 earnings per share (EPS) of $230 for 2023. This equates to a growth rate of under 5% vs. initial expectations for 10%. If these projections hold as we get further into the year, we believe investor sentiment will improve and equities could move higher on a more sustained basis.
4. Macro themes will remain important in 2023, but we anticipate markets to expand their focus on company fundamentals (e.g., growth prospects). This increased attention to fundamentals should provide tailwinds for our research-driven approach. We remain focused on understanding the macro picture, as well as identifying themes that can propel individual industries and companies forward.

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