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For February, the NASDAQ finished down 3.05% and sits positive year-to-date 10.29%. The S&P 500 was negative 2.61% but remains positive year-to-date 3.40% while the Dow lost 4.44 in February and is down 2.91% year-to-date .

Using M2 growth, alone, and Milton Friedman’s lag of 6-9 months, we should be seeing the economy begin to slow, which is what retail sales, industrial production, housing, and retail auto sales have been pointing to. And so far with 256 out of the S&P 500 companies having reported, profits are down 3.1% from a year ago.

The economy is still absorbing the money printed during the pandemic. Inflation has not been eradicated, the Fed is highly unlikely to loosen policy anytime soon, and earnings are likely to fall as all the stimulus wears off. That’s not a recipe for a simple forecast or a soft landing.

Nonetheless, it’s still unclear whether earnings estimates for the rest of the year and 2023 have come down enough. If analysts have sufficiently de-risked their estimates, we may be able to put in a bottom and look forward to the recovery. However, if that is not the case, then the stocks are not as cheap as they appear because the earnings part of the price-to-earnings equation is too high. In terms of achieving guidance and expectations.

On that note, current estimates for S&P 500 earnings are roughly $222 in 2022 and $240 for 2023. Over the past 20 years, the forward multiple bottomed out at around 10.5x in late 2008 and early 2009, before revisiting that multiple in late 2011 on the back of the global economic downturn. Outside of those extremes, the S&P 500 has tended to trade more in the 15x to 18x range, which based on that $240 estimate puts us in the region of 3,600 at 15x and 4,320 at 18x – a range we have fluctuated within all year. But again, that depends on the estimate being correct and the outlook beyond 2023 being one supportive of those more normalized multiples.

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