Over the previous few days, I’ve illustrated how a number of main indicators are flashing “RECESSION!”
By fast manner of overview:
- The 10y-3m yield curve has predicted each recession within the final 50 years. It’s telling us {that a} new extreme recession is simply across the nook.
- Oil has collapsed from $130 per barrel to ~$75 per barrel, indicating demand destruction is underway.
All of that is BAD information for shares.
Why?
Throughout the typical recession Earnings Per Share (EPS) decline by 25%.
Primarily based on what bonds are doing, shares are priced between 16 and 18 occasions ahead EPS. Wall Avenue is at present forecasting EPS development of 5% subsequent 12 months to $230.
$230 X 16 (or 18)= 3,680 to 4,410.
By the way, that’s the buying and selling vary that shares have been in for a lot of the final six months.
By Graham Summers, MBA
Over the previous few days, I’ve illustrated how a number of main indicators are flashing “RECESSION!”
By fast manner of overview:
- The 10y-3m yield curve has predicted each recession within the final 50 years. It’s telling us {that a} new, extreme recession is simply across the nook.
- Oil has collapsed from $130 per barrel to ~$75 per barrel, indicating demand destruction is underway. This solely occurs throughout a recession.
All of those information factors are BAD information for shares.
Why?
Throughout the typical recession Earnings Per Share (EPS) decline by 25%.
Primarily based on what bonds are doing, shares are priced between 16 and 18 occasions ahead EPS. And Wall Avenue is at present forecasting EPS development of 5% subsequent 12 months to $230.
$230 X 16 (or 18)= 3,680 to 4,410.
By the way, that’s the buying and selling vary that shares have been in for a lot of the final six months.
Nonetheless, a recession would imply that EPS for 2023 is nearer to $172.
$172 X 16 (or 18)= 2,752 to three,096
That’s the pink field within the chart under.
Put merely, a recession will erase trillions of {dollars} in wealth…and Wall Avenue is as soon as once more asleep on the wheel, driving its shoppers off a cliff.
You don’t must be considered one of them!
