The big things you need to know: First, the tactical indicators we’ve been tracking to gauge when equity investors’ fears may have gone too far continue to show signs of significant deterioration but are not yet pointing to extreme fear suggesting more downside in stocks remains possible in the near term. Second, other things that jump out include new stress tests on our valuation/EPS model, the latest C-suite tone, the signals from our US GDP model for the S&P 500 if consensus forecasts start to erode, and evidence of derisking in equities in the latest funds flows data.
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Takeaway #1: Our Tactical indicators Are Still Not Sending a “Hold Your Nose and Buy” Signal
sh, but still isn’t back to:
t not yet back to the lows of:
a helpful bottoming signal in:
in the aftermath of the GFC (:
Moving on to Takeaway #2: What Else Jumps Out
% contraction vs.:
EPS forecast for:
• Third, we’re also keeping an eye on US GDP forecasts. Last week we got some questions about the potential hit to economic growth from the conflict. We discussed what kind of reduction in the GDP outlook would be needed to trip up the US equity market in a profound way. Adjustments would need to be major, not modest. Quarterly real GDP (yr/yr) in the 2.1-3% range tends to be associated with a strong equity market and S&P 500 returns of slightly more than +10% over the same 12-month time frame. That’s in line with the consensus expectation as the war began. One level down, in the 1.1-2% range, the average S&P 500 return falls to a bit less than +6%. Two levels down, when GDP falls to the 0.1-1% range, the average S&P 500 return turns negative.
s from this category in early:
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
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