US – Current Valuations are Unattractive | Harris Fraser
Research Insights - Cloned
20 January, 2023
US – Current Valuations are Unattractive

Into the last month of the year, the US economy showed mixed signals,
concerns over the monetary policy path re emerged, major equity indices fell
over the month Over the month of December, the Dow, S&P 500 and the
NASDAQ lost 4 17 5 90 and 8 73 respectively.

On the economic front, PMIs missed expectations and dipped into the
contraction zone, while the much watched CPI figure continued the slide lower
However, the equally important labour market remained tight, wage growth
has slightly eased, but jobless data and nonfarm payrolls point to risks of
extended inflation Given conflicting data points, we believe there to be a great
deal of uncertainty in the inflation outlook, though it is expected to remain
elevated before the high base effect brings it lower Henceforth, the monetary
outlook for 2023 will remain uncertain regarding both the timing and direction.

Although the Fed had made it clear, that rates hikes will continue until the
terminal rate of over 5 is reached The monetary pathway could deviate from
the expected path, if the feedback from the real economy differs The whole
backdrop of uncertainty, alongside risks of recession, complicates equity
market outlook Even in the best case scenario that the economy manages to
avoid recession, and corporate earnings remain as they are at the moment,
current earnings yield are not attractive considering the risk free rate of 5
Henceforth, baring a large correction in the market, we see downside risks
outweigh upside potential, and would be keen on avoiding overweighting in
the US equity market before there is more visibility on the outlook.

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