Two More Reasons This Bear Market Isn’t Over


Goldman Sachs says the outlook for 2023 is too optimistic

Goldman Sachs analysts Ben Snyder issued a letter to investors echoing a sentiment they share. In his note, he says the outlook for 2023 S&P 500 (NYSEARCA: SPY) the gains are too optimistic given the headwinds facing the economy. Even discounting the possibility of a recession, Mr. Snyder says analysts ’consensus on margins is often too high and this is the best scenario in our opinion. The worst case scenario is that margins will not improve appreciably across the market and that profit growth will be very lukewarm in 2023 if any. The bottom line is that the analyst will likely start lowering its estimates for next year and this will add downward pressure to the stock market.



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“Looking to the future, analysts’ estimates show that the S&P 500’s profit margins will rise to new highs in 2023, ”Snider said. “Despite tightening financial conditions, persistent pressures on input costs and slowing revenue growth, analysts continue to forecast an increase in profit margins next year.”

The question is when will these expectations begin to drop and we think it may be soon. Profit outlook is generally very cloudy this year and this has led to an interesting trend. Consensus estimates for the Q1 and Q2 periods of 2022 remained stable until the end of the previous quarter, there for hope, and then fell under the weight of reality. If this trend continues, we expect the third-quarter earnings outlook to begin to plummet over the next month and the fourth quarter may fall with that. The expectation for the second half is a significant improvement in the supply chain and price stability, what we are looking at right now are ongoing supply chain problems and very out-of-control inflation.

Cathie Woods says we’re already in recession, come on

Cathie Wood echoed another sentiment we have developed over the past two months and that is that we are already in recession. In his view, the rapid rise in inventories this year, among other efforts to mitigate supply chain problems, has the market in a deflationary period and may be right. What this means is a new era of discounts, tightening margins, and ultimately a contraction in GDP as retailers and wholesalers work to reduce inventory inflation.

According to the data, we are already in a technical recession and we are only waiting for the reading of the GDP of the 2nd quarter to confirm it. The latest leading indicators reached a new low of -0.4% and included a downward revision of previous data suggesting that GDP in the second quarter will be worse than in the first quarter. In this scenario, a smooth landing seems very unlikely and there is an important data point for this week. The PCE price index will come out on Thursday and confirm the need for aggressive action by the FOMC, the only question is what is its aggressiveness? As it stands now, the FOMC is expected to raise rates by 75 basis points in each of the next two meetings.

The technical outlook for the S&P 500 does not change

The S&P 500 bounced from the 3,650 level in what started as a strong move, but the bearish market rebound is already lower. The index has met resistance to the short-term moving average and has coincided with the midpoint of a downward trend channel. In our opinion, this is a significantly bearish development that has the index set to re-test 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 complete reversal of the COVID-19-induced stock recovery.
Two more reasons why this bear market is not over



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