Even a Soft Landing Would Be Hard on Stocks
Economists think the U.S. will either experience a mild recession, or manage to just skirt one. But the prognosis for public companies looks worse.
By Justin Lahart, The Wall Street Journal, Dec. 28, 2022
…
A big reason why S&P sales growth [ sales per share will come in about 24% higher in 2022 than in 2019] have outpaced the economy [U.S. gross domestic product looks as if it will come in about 19% higher in 2022 versus 2019, unadjusted for inflation] is that a lot of S&P 500 companies are in the business of selling what people bought more of during the pandemic. Much more than the economy itself, the index is geared toward producers and purveyors of goods — by both market value and sales, manufacturers and retailers account for about half the index. In contrast, those sectors account for only about a fifth of U.S. gross output…
Now people are re-engaging in services such as tourism, haircuts and dentist visits, which probably counts as a plus for the economy but also means that even in a soft economy, spending on goods could fall sharply. For example, if over the four quarters ending in the third quarter of next year spending didn’t grow at all, but services spending grew by 3%, spending on goods would need to fall by 5.8%. The multinational nature of many big public companies makes the situation even worse, since many countries are in far worse shape than the U.S… [end quote]
This is a way of saying that buying the stock indexes (whether SPX or NASDAQ) could be problematic in 2023.
Wendy
