Much of investors’ attention this quarter has been on stock markets, as the S&P 500 went into a bear market, defined by falling over 20% from its most recent high. This is unsettling for many, but it is important to see through the noise and focus on fundamentals and the longer-term outlook. Long-term stock returns are driven by corporate earnings, which are impacted by the state of the economy. Investors currently fear persistently high inflation and the U.S. Federal Reserve’s (The Fed’s) response to it. So, as investors, we must ask ourselves how these factors will impact the economy, and thus corporate earnings? While complicated, the analysis might be less complex than previous years, as the U.S. government likely won’t try to save the day by surprising investors with another round of stimulus.
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