Bonds and equities have rallied hard lately on the back of optimism that both economic growth and inflation are now on a “glidepath lower”. Markets and economic data are often described as collective “Rorschach Test”: observers see what they want to see. Currently, Bulls and Bears are looking at the same undeniable trends but coming to opposite conclusions.

The optimist looks at the data deceleration in October and November as a positive because it means that the Fed is not only done hiking but will soon be cutting rates. The pessimist looks at the same data and might say: good for bonds but why am I buying equities when a slower economy will beget weaker corporate earnings and increases the risk of a recession?

Ultimately, equity performance relies on the “glidepath” to keep on slowing but only slowly and not too much. If demand decelerates too fast, recession drums will get louder, and the current 12% EPS growth priced in and assumed for 2024 will have to be revised considerably lower, thereby either pushing multiples higher or stock prices lower. The optimist would argue that lower yields would justify multiple expansion and therefore, even if earnings fall, don’t worry, lower discount rates mean multiples, especially of long term cash flows (tech) can and will expand.

Our humble view is that what happens next, in the near term, is unknowable. That is why we focus on where we do have conviction and that is on our longer-term themes: Labor markets are secularly tight. Potential GDP growth (the rate at which the economy can grow without inciting inflation) is lower going forward than what we have enjoyed in recent decades and the emergence of global protectionism is inflationary. So, while we refrain from making short-term market calls, we will reiterate what we have been saying, which is that your risk reward in equites isn’t very good. Multiples are high, and the never previously achieved “soft-landing Nirvana” is priced in. The Great Moderation of lower rates and lower inflation volatility is over, which suggest that, over time, equity multiples will compress. Have a great weekend and try to tune out the short-term noise.

WealthVest makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made in this material, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of Tim as of the date indicated. They do not necessarily reflect the views and opinions of WealthVest and are subject to change at any time without notice. WealthVest does not have any responsibility to update this material to account for such changes. There can be no assurance that any trends discussed during this material will continue.

Statements made in this material are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed in this material, including consulting their tax, legal, accounting or other advisors about such information. WealthVest does not act for you and is not responsible for providing you with the protections afforded to its clients. This material does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by WealthVest.

Certain statements made in this material may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.

The S&P 500® is a trademark of Standard & Poor’s Financial Services, LLC and its affiliates and for certain fixed index annuity contracts is licensed for use by the insurance company producer, and the related products are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC or their affiliates, none of which make any representation regarding the advisability of purchasing such a product. WealthVest is not affiliated with, nor does it have a direct business relationship with Standard & Poors Financial Services, LLC.