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Santo Domingo, February 22, 2023.
"In the short term, the stock market is a voting machine, but in the long term, it is an endurance machine." Warren Buffett. Optimism may be mounting, but the path ahead remains uncertain. Financial analyst Antonio Velardo estimates that "the current state of the market is one of uncertainty, since the adjustment measures taken by the Federal Reserve to combat inflation are beginning to have an effect, but not much yet"
"We should expect a slowdown in the economy," says Antonio Velardo, especially in the labor market, for the Fed to declare victory over inflation. "To shrink the labor market, we need to see a decline in corporate profits. A 20% decline in profits should be enough to induce a reduction in the workforce, which would have an impact on inflation." the strength of demand has adjusted, the inflow of money from printing continues to have an aftereffect, and spending has not fallen enough to reduce inflation. "The income that has been driving spending needs to stop, and that can only happen if there are layoffs. It's a sad reality, but it's what we need to see to reduce inflation," according to Antonio Velardo. The consumer is not as concerned about recession and still has income money to spend, showing no sign of weakness. This is impacting corporate earnings in a better way than analysts initially thought. "Consumer strength was the surprise here," according to Antonio Velardo; that is why corporate profits are not being affected as they should be. "However, the lagging effect of high interest rates and the Fed's persistence to really make a dent in the job market could create a realization in a few months that Wall Street has been too exuberant and perhaps should reconsider valuation." ."The market mindset is that the Fed will protect us, but the reality is that we are moving in a different direction, more like the boom-bust cycle of the 1970s. A return to a 2% inflation rate through a slow iteration over several years is a more likely scenario, so the big boom would not be so easy this time.” The profit bubble will not be sustainable if the genuine desire is to lower inflation. As history has shown, a 20% decline in profits should lead to layoffs and a decline in inflation. However, the market is overvalued by about 20%, which means there is a risk in terms of valuation. "The Federal Reserve is trying to slow down the market, but the market is not delivering, creating a vicious cycle," says Antonio Velardo. "Corporate profitability is not reversing, and if earnings are peaking, then we should expect a decline. Despite the bullish market outlook, there may not be much room to the upside and higher risk. That's why that, at this point, it may be prudent to hunker down in cash, bonds, or even some small unknown companies, even if it means losing some of the upside potential." "It's hard to predict how much bull market momentum will drive prices higher, but from Right now, we may be overvalued because of the need for a recession to combat inflation."
Contact Contact name: Alejandro Ramis Contact description: Alejandro Ramis Contact telephone number: 648572198