The Fed’s narrative is unambiguous. The Powell pain is coming and the question of a soft or hard landing is now ‘soft-ish’ or hard. That is, it is going to be harder than soft. Market commentators are now debating the type of probable global recession. During a recession, earnings compress. To date, earnings revisions have been soft-ish. Price to earnings ratios need to therefore re-rate. To get inflation down, the Fed needs to loosen the labour market to get wage growth down. Unemployment invariably will rise. If a recession for 2023 is the base case, be prepared for a plethora of opportunities to surface. It is in these times that astute investors buy from the pessimists.
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