The economy continues to do better than most expected. One example is that the first quarter’s earnings season is looking better than originally forecasted. With earnings season almost over, companies are currently on pace to grow top-line revenue growth by over 4% though bottom-line earnings growth is expected to be lower by 1% year-over-year. While these numbers are below long-term averages, they did beat expectations by more than average and by impressive margins. Also, given current expectations for earnings heading into year-end, it appears that trailing 12-month earnings have hopefully bottomed. That could explain why the stock market price lows are now seven months old. Stocks typically lead earnings.
In addition, the overall economy continues to surprise to the upside. For example, the Atlanta Fed GDPNow Forecast Tool is now estimating Q223 GDP at 2.9% (as of 5/17/23). This number also continues to improve. Despite these economic numbers, and the nice gains in the stock market this year, investors and business leaders remain nervous about the future. Is a recession still coming? In times like these, here’s a useful phrase from a recent Morgan Housel podcast called "A Few Things I’m Pretty Sure About" to lean on:
“A good bet in economics is that the past wasn’t as good as you remember, the present is not as bad as you think, and the future will be better than you anticipate.”
Stay invested. Stay diversified. Stay disciplined.