Will we get a recession? … majority expectations for tamed inflation … 2023 earnings estimates are absurdly divergent … how to invest despite this complicated market set-up

Market veterans will tell you that when most investors become convinced that a certain market dynamic is going to play out, the opposite often happens.

Today, 72% of the economists polled by the National Association of Business Economics predict a 2023 recession.

American CEOs put the number even higher. A survey from October found that 85% expect a recession next year.

And Bloomberg economists recently put the odds at 100%.

This is a great deal of certainty that a recession will happen…

Might it make sense to make a bullish market bet against it?

Before you answer, let’s consider inflation expectations.

Today, the majority opinion is that we’re beyond peak inflation and that 2023 will bring a substantial decline.

For example, Goldman Sachs believes inflation will be under 3% by the end of 2023.

Last Friday, the University of Michigan Consumer Sentiment Survey found that inflation expectations have fallen to their lowest level since 2021.

Even over in the bond market, the expectation is that inflation is on its way out. We can see this by looking at the 10-year Treasury yield, which has plummeted from 4.20% in October to roughly 3.57% as I write Monday morning.

This is a great deal of confidence that inflation is on its way out…

Might it make sense to make a bearish market bet against it?

Confused? Hang on, we’re not done yet

While it appears “recession in/inflation out” are the predominant narratives, there’s far greater disagreement when it comes to 2023 earnings expectations.

And as we see it, this is the most impactful variable for your portfolio.

To illustrate why, let’s say inflation is a whopping 10%, but a company grows its earnings by 50%.

In that case, overall earnings are fantastic. Investors will cheer and flood into the stock – even though the inflation rate is awful.

On the other hand, if inflation comes in at just 3%, but a company’s earnings are severely impacted, resulting in 0% growth, well, investors will bail – even though that 3% inflation rate is miles below the prior 10% inflation rate.

Earnings really move the needle. Whether inflation is high or low, whether a recession is awful or nonexistent, earnings are what drive the long-term performance of your portfolio.

So, how are 2023 earnings expectations coming in?

This is where we run into trouble.

Earnings expectations for 2023 are all over the board, depending on who you ask

The consensus estimate is for 5% earnings growth in 2023. And remember, most market watchers now expect a recession next year. So, this 5% earnings growth during a recession already raises an eyebrow. But let’s keep going.

What do fund managers expect for earnings?

Here’s CNBC:

No earnings apocalypse in 2023? 

That seems to be the theme from a Bloomberg survey of 134 fund managers. 

The managers collectively expect earnings to rise by an average of 10% next year (71% expected earnings to rise).

For context, the median earnings growth rate for the S&P 500 since 1990 is 12.3% according to Multpl.com. So, despite widespread recession expectations, fund managers believe earnings growth next year will be only slightly below normal.

On the other hand, many strategists are now far more negative. For example, Mike Wilson at Morgan Stanley thinks earnings will shrink 15% to 20% in 2023 (if that happens, we’re in for new lows in this bear market).

Then there’s David Kostin from Goldman Sachs who’s calling for 0% earnings growth.

So, we have forecasts for 2023-earnings-growth of -20%… to 0%… to +10%.

Great, very helpful.

As you might expect, this massive divergence in earnings forecasts is setting up an equally massive dispersion in expectations for where stocks go next year.

Here’s Bloomberg:

Where do we go next?

Judging by numbers compiled by my colleague Lu Wang, the dispersion in estimates for the coming year is the highest in more than a decade.

This chart shows the spread between the highest and lowest estimates back to 2008:

So, given all this uncertainty, how do we position ourselves for next year?

That’s the focus of a special event tomorrow afternoon with our three expert analysts, Louis Navellier, Eric Fry, and Luke Lango

Tomorrow at 4 PM ET, the three veterans will sit down to discuss the state of the markets.

The Fed… interest rates… inflation… recession risk… earnings… they’ll cover all of it.

The purpose is to help attendees get a handle on what’s coming in 2023.

But it’s not just a market commentary. Louis, Eric, and Luke will also introduce their Power Portfolio 2023.

This is a collection of hand-selected stocks that have passed all of Louis’, Eric’s, and Luke’s strict selection criteria, presented as a batch (rather than dripped out “one per month”).

It’s holistic, diversified portfolio, engineered for one reason – to grow your wealth in 2023, despite the most challenging condition in decades.

To be clear, this isn’t a necessarily a “buy-and-hold forever” portfolio. This is tailormade for 2023’s market conditions, as our experts see them.

Arriving at a portfolio that meets the strict standards of all three analysts is a challenge in itself. That’s because despite sharing enviable long-term track records, Louis, Eric, and Luke approach the markets differently.

Louis is a classic “bottom up” investor. This means he focuses on outperforming single stocks first with the help of his computer models.

He has objective criteria programmed into highly-advanced computer algorithms that signal what to buy, when to buy it, and when to sell to collect the profits.

After finding investment candidates, he evaluates their broader sector to make sure he still likes the overall opportunity.

Eric is a classic macro, or “top down” investor. He starts by analyzing entire sectors, countries, trends, or asset classes to find the most explosive ones.  

After an opportunity is in his crosshairs, he digs deeper to find the specific investments best positioned to capitalize on that broad trend.

Luke is a “research heavy” analyst, incorporating technical analysis, fundamental analysis, macro factors, thematics, historical data… Frankly, Luke eats and breathes this stuff, so there’s little that he doesn’t review as part of his research process.

Despite these different market orientations, Louis, Eric, and Luke all agree that 2023 presents enormous opportunities for wealth-building.

That’s why they’ve come together to create a best-of-breed portfolio – Power Portfolio 2023.

You’ll hear more about that at tomorrow’s event.

Coming full circle, investors are heading into a very uncertain 2023

By joining Louis, Eric, and Luke tomorrow, you’ll get a handle on these issues, the likely paths they’ll take, and you’ll learn more about a portfolio engineered to outperform despite the confusion.

I should mention that just for being a part of the event, our experts are giving away three different stock recommendation they believe will surge in 2023. Like the stocks within the Power Portfolio 2023, these picks have undergone, and passed, the strict selection processes for each of our three analysts.

To reserve your seat, click here, and we’ll see you tomorrow at 4 PM ET.

Have a good evening,

Jeff Remsburg