This year’s economic situation was unlike any other in recent history; In addition to booming price increases for goods and services, corporate earnings proved relatively resilient confusing investors looking for signs of a slowdown.
But earnings estimates didn’t fall enough to reflect what’s ahead, according to Pinto, and that could mean the market is pulling back. The S&P 500 is down 21% this year through Friday.
″I don’t think we’ve seen the bottom of the market yet,” Pinto said. “When you think about corporate earnings for next year, expectations may still be too high; multiples in some stock markets, including the S&P, are probably a bit high″ .
Still, despite the increased volatility that he expects to remain, Pinto assured that the markets were working “better than expected”. With the notable exception of the collapse of Britain’s public debt that led to the resignation of that country’s prime minister last week, markets have been orderly, he said.
That could change if the Ukraine war takes a dangerous new turn, or if tensions with China over Taiwan spill over onto the world stage., disrupting progress in supply chains, among other potential dangers. Markets became more fragile in some respects because reforms after the 2008 crisis forced banks to hold more capital tied to trading, which it increases the likelihood that markets will stall during periods of high volatility.
“Geopolitics is the great black swan on the horizon that hopefully doesn’t come to pass,” Pinto said.
Even after central banks rein in inflation, interest rates are likely to be higher in the future than they have been in the last decade and a half, he said. Low or even negative rates around the world were the defining characteristic of the previous era.
That low-rate regime punished savers and benefited riskier borrowers and companies that could continue to tap debt markets. It also led to a wave of investment in private companies, including fintech firms that took on JPMorgan and its peers, and supercharged tech stocks as investors paid for growth.
“Real rates should be higher in the next 20 years than they have been in the last 20 years,” Pinto said. “Nothing crazy, but higher, and that affects a lot of things, like the valuations of growth companies,” the executive said.
Source: Ambito
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