OUTLOOK 2023 earnings per share as high as $235 in 2023 and over $250 in 2024. On the other hand, stubbornly high inflation and a more prolonged economic downturn could introduce downside risk, possibly down to $200 per share in earnings in 2023 before a potential rebound to $230 in 2024. TILTING THE SCALES BACK IN FAVOR In 2022, the bear market decline in stocks was all about the macro picture—high inflation, surging interest rates, and rising recession risks. Strong fig. consumer and corporate balance sheets and growth in corporate profits were not rewarded by investors, who were focused on rising recession risk 2023 year-end stock market and concerns of higher interest rate levels affecting future earnings. Add 8forecast scenarios to that a tense geopolitical landscape and a strong U.S. dollar, and stocks struggled to make any headway Bear case Base case Bull case throughout the year. ESTIMATED 15% 60% 25% Looking ahead to 2023, stock PROBABILITY drivers are likely to be more balanced. ECONOMY Recession Flattish growth, Soft landing possible mild recession Rather than the scales tilting toward rising interest rates and runaway INFLATION Remains stubbornly high Gradually eases Falls faster inflation, we may see falling interest than expected rates and lower inflation supporting INTEREST RATES Stay high or rise further Move gradually lower Fall materially higher stock valuations. Should the outlooks for economic growth and FEDERAL RESERVE Fed tightening continues Fed pauses in Fed signals pause inflation improve as 2023 progresses, well into 2023 early spring 2023 before year-end 2022 stocks may also get a lift from EARNINGS Recession drives Stall amid growth lull, Margins rebound prospects for stronger earnings double-digit decline cost pressures as inflation falls growth in 2024. U.S.-China tensions build, Progress comes slowly China eases COVID policies, LPL Research’s Strategic and GEOPOLITICS Russia-Ukraine escalation in China, Ukraine Europe conflict contained Tactical Asset Allocation Committee Modest P/E multiple Modest P/E multiple Sizable P/E multiple (STAAC) sees fair value for the S&P VALUATIONS compression expansion expansion 500 at 4,400–4,500 at year-end 2023, ESTIMATED P/E based on a price-to-earnings ratio of 16 18 20 18–19 and $240 per share in S&P 500 2022 EPS 220 220 220 earnings in 2024. That target is also 2023 EPS 200 220 235 derived from probability-weighted 2024 EPS 230 240 255 scenarios and based on various paths YEAR-END 2023 S&P 500 for the economy, inflation, interest FAIR VALUE TARGET 3680 4320 5100 rates, and earnings [Fig. 8]. TARGET 4400 – 4500 Our bear case fair value of 3,680 is Source: LPL Research 11/15/22 based on 16 times $230 per share in Estimates may not materialize as predicted. Indexes are unmanaged and cannot be invested in directly. P/E is a price/earnings ratio. 08