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

• The latest entry in his series of macro updates. Mayur still believes that we are headed toward a recession in 2024, and he cites a plethora of metrics that support his thesis: Manufacturing gauges have been in recession for 15 months; the 10y – 2y UST yield curve has been inverted for 20 months; and many other signals flashing red. He also focuses on indicators that imply that the job market is much weaker than it appears—including cyclical employment in its 7th consecutive month of YoY contraction, full-time YoY job growth at its slowest outside of recessionary periods, and average weekly hours in rapid decline consistent with recession, among other alarming trends.

• What do these macroeconomic indicators mean for stocks? Mayur points out that the S&P 500 forward P/E is significantly higher than previous 5% environments, and that the direction of leading fundamental indicators (including the rising cost of capital), at the margin, implies negative pressure to S&P earnings. This means analysts will mark down FY 2024 EPS forecasts. Finally, Mayur offers his ideal defensive capital allocation for the low-growth environment he sees ahead.

• However, Mayur notes that there is initial evidence that S&P 500 earnings growth put in a trough around Q3 2023 and is beginning to re-accelerate. Combined with continued disinflation and easing long-term bond yields, the market has exhibited extraordinary momentum leading to a major breakout from the 2021 top. His conclusion: While recession is still the likely outcome, it may not be as imminent as he originally thought. Mayur offers two signals to look out for to potentially time the beginning of a major downturn more accurately.