Chart of the month: the outlook for the S&P 500 isn’t very merry

With labour costs rising, even a mild recession should lead to a sharp fall in profits. And if we see a 20-25% decline in S&P 500 profits, then past relationships suggest the index could also fall by 20%.

This is the key reason we’re underweight equities going into 2023 and think the S&P 500 could dip to the low 3,000s. At that point, we suspect all the bad news will be priced in, and we’d look to increase exposure again.