🌬️ How Recession Risk Is Rising Through Headwinds To Corporate Earnings

🌬️ How Recession Risk Is Rising Through Headwinds To Corporate Earnings

It's no secret that this year has been characterized by market and economic uncertainty due to inflation, monetary policy, and geopolitics. Prolonged market unease can be attributed to the fact that these economic effects take time to evolve. Inflation is not an overnight event but the result of supply and demand factors since 2020, compounded by monetary and fiscal policies. As mentioned last week, the effects of tightening monetary policy by the Fed are realized on a significant lag. The spike in energy and commodity prices due to the war in Ukraine will not be resolved quickly. Political events in China, the U.K., and the upcoming U.S. midterm election only add to this uncertainty. These facts underscore the need for investors to focus on the long run and resist the urge to react to every market movement, whether positive or negative.

We discuss in this episode of The Wealth Effect Podcast:
🔗 The Linkage of Corporate Earnings and Stock Prices
🧮 Stock Market Sector & Style Valuations
💵 The Impacts of a Strong U.S. Dollar

CONTACT

Matt Faubion, CFP®

Founder - Wealth Manager

Show notes and charts:

In the long run, the stock market follows corporate profits

Corporate profits are still positive but falling

The U.S. dollar is near record strength

The bottom line: Corporate earnings growth appears to be stalling, and consensus forward estimates, while lower than average, are not discounting rising recession risk and input costs. Further, the rising dollar and worsening consumer balance sheet health are developing headwinds to the economy and markets.

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