Short-term pain, long-term gain might be the phrase that will best describe the economy over the next 12 months, according to researchers. Morgan Stanley Research strategists think U.S. corporate earnings could decline 16 percent in 2023 but stage a comeback in 2024 and 2025. “We expect a more meaningful earnings recession (with S&P 500 earnings-per-share falling 16 percent for the year to $185) that has yet to be priced into the market,” according to Mike Wilson, chief U.S. equity strategist and chief investment officer for the financial services firm. “We also forecast a sharp rebound in earnings- per-share growth in 2024 (23 percent) and 2025 (10 percent),” he said in a June 15 report. For the past several years, the firm’s overarching view on markets has been shaped by its hotterbut-shorter cycle framework. “We think the boom/bust period that began in 2020 is currently in the bust part of the earnings cycle —a dynamic we believe has yet to be priced into the bear market that began 18 months ago and has been largely related to higher interest rates. We expect margins and earnings to decline rapidly as inflation falls.” As business leaders plan ahead for 2024, “we see the market processing a much healthier earnings backdrop. Our 2024 EPS growth estimate of 23 percent for the year is in line with the historical precedent for earnings one year after earnings growth bottoms,” Wilson said. Allianz SE, a Munich, Germany-based bank, provided a global view in a June 20 outlook report. “Some larger economies slipped into recession earlier this year amid a difficult global economic outlook, with GDP growth averaging only 2.5 percent in 2023. “The manufacturing and global trade recessions dragged several economies into a technical recession in Q1 (Germany, Singapore, Taiwan). Residual effects of tighter monetary policy [will] shape a tempered 2023-24 growth scenario, with the U.S. and Eurozone heading towards a soft landing and a subdued rebound in 2024. “Most advanced economies are expected to avoid a full-fledged recession but will remain in a lowgrowth environment,” the bank predicts. “Social fatigue is likely to unfold amid a general convergence towards lower growth rates on the back of decelerating commodity prices, a higher U.S. dollar, rising liquidity strains and delayed rate pivots.” Given “sticky” core inflation, economists at the bank said high interest rates will remain prevalent among advanced economies. In the U.S., resilient economic activity and less acute financial stability concerns means tighter monetary policy. Following a pause in June, two final rate increases of 25 basis points each are likely in July and September, leading to a 5.75 percent prime rate. A lot of the economic resilience that is seen can be attributed to the labor market—“ indeed, companies are hoarding labor despite the fall in margins,” Allianz says. “But this can’t last for too long. Earnings fell for two quarters in a row.” The bank forecasts a margin squeeze in the coming quarters, increasing pressures on these companies that scaled back hiring but hoarded labor amid deteriorating demographic trends and the expectations for a short-lived moderate recession. Equity markets should see downward pressures in the next few months. Weaker long-term growth, elevated short-term rates, an easing to price inflation and deteriorating liquidity are poised to negatively impact valuations. Next year will be politically charged as national elections take place across economies that account for close to 75 percent of global GDP, including the United States, European Union, United Kingdom, Russia, Poland and Mexico. Nonetheless, we at Modern Metals have observed that U.S. manufacturers remain in investment mode, anticipating demand upticks for specialized products and services far into the future.