BNP Paribas AM: EQUITY OUTLOOK OCTOBER 2022 – The second shoe


The path ahead for global equities is clear; it’s the timing that is uncertain. Inflation is sticky and well above target in the US and in Europe. Central banks are determined to bring it back down to target, which will likely require a recession. In Europe, a recession is likely anyway, simply due to the energy shock.

25.10.2022 | 06:51 Uhr

Predictably, equities have fallen this year and we anticipate further declines as recession draws nearer. Talk of a soft landing is now as dated as that of ‘transitory’ inflation. The declines in the US have, so far, been driven primarily by the increase in policy rate expectations and the subsequent impact on multiples (the first shoe), rather than forecasts of lower earnings (the second shoe). In fact, estimates (excluding commodities) have dropped by just 2% in the US since the spring. In Europe, they have — surprisingly — risen, boosted by depreciating currencies and rising estimates for financials alongside higher policy rates (see Exhibit 1).

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