Just a reminder that SP500 closed Friday 2/3/23 at 4136, with 1 year forward operating PE at 18.2. This is above 85th percentile in SP500 history. If you just use 2023 EPS consensus estimate of 226, it's even higher at 18.3
With 10 year real yield between 1.2% and 1.6%, higher interest rate than what we've had over the last decade (and even higher forward PE if you exclude COVID), near 0 GDP growth projected by the Fed and economists, corporate profit margins compression as inflation cools down more quickly than wages (even if the soft landing occurs) with all time low productivity, there's not a lot of reason for SP500 to go up from 4000. Most of the recovery in the 2H of 2023 has already been priced in. Generally forward PE of around 16 are good buys, 15 or below great buys, and above 18 to be good sells.
General consensus among US strategists is SP500 will have a weak 1H2023 and a strong recovery 2H2023 to end the year slightly up at around 4100. At the beginning of the year, I found it hard to believe the bottom could be put in with so much agreement in the consensus. Now with the soft landing narrative back into play and strategists are in disagreement on the 2023 outlook, I see the condition for the bottom much more likely.
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