This week, Zacks Equity Strategist Mayur Thaker, CFA discusses:

• What leading indicators say about the economy and market ahead. Mayur walks through the data, including Chicago PMI, ISM Manufacturing and other gauges that show U.S. manufacturing is in decline; cyclical employment in YoY declines; an inverted and re-steepening Treasury 10y-2y yield curve; Leading Economic Index in deep contraction for 18 straight months; banks under continued tremendous pressure; and more.

• What do these indicators imply for stocks? The S&P 500 is still trading at a higher forward P/E than in previous 5% Fed funds rate environments—and on lower forward EPS growth expectations.

• Mayur’s conclusion is that the market is substantially overvalued and that analysts will mark down both FY 2023 and especially FY 2024 earnings forecasts. He notes that markets are priced for earnings growth at a forward P/E of 18-20x, and if that doesn’t happen, there will be a substantial drawdown. Finally, Mayur offers his ideal capital allocation for the low-growth environment he sees ahead.

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The views of Mayur Thaker, CFA are not necessarily the views of Zacks Investment Research.

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