Skip to main content

Economic outlook: The markets have adjusted, but where's the bottom?

July 15, 2022
clock 6 MIN READ

View transcript

Close transcript

- Hi, I'm Heather Corkery, Managing Director of Client Portfolio Management at SEI. Today I'm here with Chief Market Strategist and Senior Portfolio Manager Jim Solloway to provide a preview of one of the timely topics he covers in our most recent economic outlook. Jim, the recent poor performance of financial markets suggests that investors have already priced in lots of bad news. How much more pressure do you think markets will encounter?

- Well, the future is difficult to predict. Stock valuations may provide some clues. The 20.6% price decline in the S&P 500 index during the first half of 2022 contrasts sharply with the ongoing increases in corporate earnings estimates. The forward price to earnings ratio for US large cap stocks has fallen back during the first half of the year to just above its average for the 2010 to 2019 period. The US technology sector has endured an even sharper valuation decline. Despite that steep drop, stocks remain expensive. Tech stocks in particular are trading at a 21% premium to their 2010 to 2019 average. The contraction has generally been far less steep outside the US but the PE for international developed market stocks is actually at a discount to its 2010 to 2019 average.

- Do you think stock prices reflect the possibility of a recession at this point?

- Perhaps not completely. PE ratios tend to contract as earnings estimates decline. Even if PEs remain at current levels, we should expect a decline in projected earnings and a comparable decline in stock prices as analysts incorporate a recession impact into their models. While nobody likes recessions, it's worth remembering that they are a normal part of the economic cycle.

- Thanks, Jim. Read our latest economic outlook and watch our longer conversation on risks, challenges, and uncertainty that investors are facing today. We're working to manage the client-specific impacts of this environment to determine the appropriate asset allocation strategy as part of our advisory process.

Important information

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Positioning and holdings are subject to change. All information as of the date indicated. There are risks involved with investing, including possible loss of principal. This information should not be relied upon by the reader as research or investment advice, (unless you have otherwise separately entered into a written agreement with SEI for the provision of investment advice) nor should it be construed as a recommendation to purchase or sell a security. The reader should consult with their financial professional for more information.

Statements that are not factual in nature, including opinions, projections and estimates, assume certain economic conditions and industry developments and constitute only current opinions that are subject to change without notice. Nothing herein is intended to be a forecast of future events, or a guarantee of future results.

Our perspectives on industry challenges and opportunities.