The way we started 2022, I’m sure we all remember seeing rather profound risks in front of us… but we were also near all-time highs, so they were relatively easy to look past. Well, we’re on the other side of that coin now, aren’t we?

That’s the good news for the new year, actually: plenty of valuations have been depleted, across sectors and including some truly great companies. We’ve finally managed to remove an unreasonable level of expectations from forward earnings. We may, in fact, even be headed for an earnings recession, though this is far from a consensus view just a couple weeks prior to Q4 earnings season.

Zacks Director of Research Sheraz Mian spoke a bit about what to expect this earnings session. He acknowledged that expected declining growth in back-to-back quarters might technically put us in an earnings recession, but he preferred to look at it this way: “Overall, a moderating earnings environment is the less-dramatic way to put it… Estimates have been coming down for a while now — April, to be precise. But if the economy can avoid a nasty recession, then the bulk of cuts could likely be behind us.”

A “steady as she goes” Q4 earnings season, and maybe glancing into a light recession for just a couple quarters, might be the optimistic way of looking at 2023, or at least the first half. And the Fed has already suggested that the longer it is underwhelmed by major economic reports, the more it plans to keep high interest rates (5.00-5.25%, 75 bps higher than we are today) for longer, meaning a prolonged period of slightly tighter monetary policy than we’re experiencing now.

If the coming economic reports in early 2023 bring some surprises, however — negative surprises — that’s a likelier way to see shifts in Fed policy, near term. These things are not set in stone, after all (remember when inflation was just “transitory”?). But with it would come pain in areas that have been comfortable for some time. Thinking of the jobs market. Next week brings us monthly ADP and nonfarm payroll reports.

Not only do we get private-sector payrolls (Thursday next holiday-shortened week, not the usual Wednesday) from ADP and the U.S. Bureau of Labor Statistics (BLS) Employment Situation on Friday, but next week brings us ISM and S&P PMI Manufacturing and Services, JOLTS and job quits, Fed minutes from the December meeting, Weekly Jobless Claims, Trade Deficit and Factory Orders. We’ll know a lot more about our economic situation a week from today than we do now.

Thus, with the last glasses of mulled wine sipped (and champagne on New Year’s — while we can still get champagne), we can put this cruel year of dashed hopes behind us. Happy New Year!

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