One of the major fears heading into the year was centred around earnings, says Greg Taylor, chief investment officer at Purpose Investments. In his macro commentary, he says the bulk of the market sell-off in the past year was due to multiple contractions. “For this year to be positive, we would need to rely on earnings growth to kick in. Heading into a recession, with margins under pressure due to cost inflation, it seemed like a tough ask.
One of the major fears heading into the year was centred around earnings, says Greg Taylor, chief investment officer at Purpose Investments. In his macro commentary, he says the bulk of the market sell-off in the past year was due to multiple contractions. “For this year to be positive, we would need to rely on earnings growth to kick in. Heading into a recession, with margins under pressure due to cost inflation, it seemed like a tough ask. Yet once again, overall earnings season is coming in ahead of fears as the consumer remains resilient,” he says. One area that saw some earnings contraction is commodities, as growth slowdown concerns have impacted commodity prices. Yet many of these stocks have held in well as merger and acquisition activity has picked up, with larger companies looking to add growth projects after years of a lack of exploration and development. Markets have also been able to isolate and look over the valley of a US banking crisis. The rapid collapse of several US regional banks, in hindsight, seemed obvious as they had been aggressively lending out at low rates while holding long-duration assets that were declining in value with rate hikes. “We still don’t know the full impact of this crisis on the economy, but it will have the effect of tightening financial conditions,” he says.
