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

• His latest assessment of what leading indicators say about the economy and market ahead. To make his case that these metrics all point to a recession in the first half of 2024, he highlights the inverted Treasury 10y-2y yield curve, U.S. manufacturing in recession for over a year, and more. Mayur uses measures of cyclical GDP and employment to illustrate the downward trends in the economy.

• After his thorough macro analysis, Mayur turns to the question of what these economic signs imply for stocks. He points out that 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.