“We don’t expect -- and many of our portfolio managers across asset classes -- don’t expect a sustainable rebound in interest rates for some time,” Lauren Goodwin, an economist and multi-asset portfolio strategist at the firm, said in an interview at Bloomberg’s New York headquarters. “There’s some ‘there, there’ in terms of what does average valuation look like?”
Still, it’s not just price-earnings multiples that a growth slowdown, and potential recession, calls into question. Of course, that would bode poorly for revenue and profit growth, too. Companies in the S&P 500 are projected to grow profits next year by 10%. Investors are already skeptical that double digit earnings growth is attainable, but any slowdown could cast a shadow over any growth.
The S&P 500 currently trades at around 16.5 times next year’s expected earnings. Should no profit growth materialize though, that same valuation measure would jump above 18.
“Not only do you then have the opportunity for businesses to under-perform those expectations, but you also have the downside surprise and so that’s something that we’re really concerned about,” Goodwin said. “Earnings estimates are too rosy.”
--With assistance from Vildana Hajric and Lu Wang.
This article was provided by Bloomberg News.