The adverse is that the US inventory market, regardless of the 19.4% decline within the S&P500 in 2022, has not but totally discounted the earnings downgrades that may happen within the occasion of a recession.
The constructive is the potential for a dramatic U-turn in Federal Reserve coverage in 2023 when the American central financial institution out of the blue focuses on the mounting recession danger, mentioned Wood in his weekly publication Greed and Concern.
“The important thing level will then develop into whether or not the Fed provides higher precedence to combating recession over getting inflation beneath its 2% goal since it’s unlikely, although not inconceivable, that headline inflation could have fallen beneath that stage by then,” mentioned Wooden.
He mentioned the Federal Reserve’s so-called “dot plot”, when it comes to particular person Fed governors’ forecasts, signifies no Fed fee lower earlier than 2024, whereas cash markets anticipate one later within the third quarter of 2023 or earlier within the fourth quarter of 2023.
He mentioned valuations in India, Greed and Concern’s long-term favorite, are “undoubtedly difficult”. The Nifty trades at 18.8 instances 12-month ahead earnings, in contrast with 10-year common of 17.2. “If that is considerably of a priority tactically, the actual fact stays that India stays by far the very best home demand story structurally within the Asia and rising market universe,” mentioned Wooden.