2022 has been the most challenging year for investors since 2008. The prevailing emotion remains fear and uncertainty. However, there is one notable development in recent weeks. Due to inflation exploding higher and the Fed taking an aggressively hawkish stance, we saw multiples significantly compress from the mid-20s to its current 15.8. Meanwhile, earnings growth remains positive with expectations of 4% growth in Q2 and 10% growth in Q3 and Q4.
Therefore, it’s likely that we could have another leg lower if earnings estimates start to be cut by analysts. Given these conditions, investors should be cautious in increasing exposure as the near-term outlook remains cloudy. For those with a longer-term horizon, this is certainly the time to start doing research as a recession could yield a fantastic buying opportunity in stocks whose long-term prospects are only improving.
