Investors are hoping for the stock market to recover in May after a catastrophic April, but there may still be bad news on the horizon. It is important for investors to have an informed view of current market and economic conditions. An analysis of current market factors in a historical context provides a clear picture of what is happening now – and when it may change in the future. Keep this information in mind when you are managing your investment portfolio for long-term growth.

1. Corporate income does not stop bleeding

The market is again in the midst of the profit season, approx half of S&P 500 it remains to report the results of the first quarter. Earnings in the fourth quarter were better than expected and were generally strong, and these positive surprises helped offset the downward pressure on stocks. This time things are less encouraging.

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Most companies are still exceeding expectations, but there is a clear slowdown in growth, affecting the stock market. The mixed average profit growth rate for the S&P 500 is still around 7%, which is the slowest expansion rate in almost two years. This is a sign that economic performance is finally normalizing due to a pandemic disruption.

The CEOs ’comments regarding the outlook for the rest of the year are also not very good. Revenues were generally slightly negative, reflecting growing pessimism among corporate management. Investors, analysts and executives share concerns that the combination of inflation and rising interest rates is likely to hurt consumption and overall business activity. This is bad news for sales, corporate profits and stocks.

All of these are good reasons for concern, but it’s important to recognize that the stock market is taking a beating despite the overall positive news from corporate profits. Growth may slow, but it is still well above historical averages, and it breaks the 5 percent expansion rate that Wall Street predicted a month ago. The revenue season looks even better when excluded Amazondealing with a a complex combination of problems now. The S&P 500 will grow by more than double digits without the influence of the e-commerce giant. Even a gloomy forecast that captures headlines is easier than downright threatening.

The stock market has reached valuation levels that have been sustainable only with the support of an exciting corporate fundamentals. Expecting huge growth rates to infinity has never been realistic. Such results are no longer available, and corporate profits are growing by 7%. accompanied by market correction.

The second half of the earnings season will not be a lifeline for the market in May, although individual stocks may receive blows from bullish reports.

2. The bottom will not come in May

As stocks continue to struggle, investors are approaching the buyer’s market. Experienced investors will keep this on their radar.

Rising interest rates and fears of an approaching recession are forcing investors to withdraw capital from the market. As a result, stocks are cheaper compared to the fundamentals. The forward P / E ratio for the S&P 500 it is now around 18. It is still above the all-time average, but below the five-year average and well below the level a year ago when the forward’s P / E was 21.

It’s always hard to see wealth declining due to a stock collapse, but for some people it’s news that’s very nice. Many investors have been frustrated by irrational estimates over the past two years and have had difficulty finding good places to invest capital. Despite a rather abrupt return to reality, the evidence does not show that a turnaround is inevitable. Interest rates should continue to rise throughout the year, fears of a potential recession should persist for at least another quarter, and estimates are unlikely to reach unreasonably cheap levels in the next 30 days. These are important considerations for portfolio management.

Market termination is not a very good idea. Predicting exactly where the bottom of the market cycle will reach is virtually impossible, and there must usually be obvious catalysts for global economic growth to rebuild the bullish market. Even after the valuation returns to the ground, stocks can go a long way from there. The propensity to risk tends to sway like a pendulum, pushing major stock indexes to volatile highs and lows, but the upward trend has been steady over fairly long time horizons. However, it is important to monitor macroeconomic conditions to optimize long-term profits.

Don’t become the extreme opposite and don’t get overwhelmed unsustainable stock growth just because the market is getting cheaper. This is a good way to incur even greater losses than everyone else. Stick to your long-term distribution strategy and make small changes to volatility if conditions allow. As the value of the stock falls, growth gradually becomes less risky.

If the market fluctuates below average historical estimates, it is suddenly a great opportunity to buy for long-term growth. Just don’t be shocked when it gets worse before it gets better. I’m waiting stock price continue to outpace stock growth in May, but the portfolio adjustment is officially on my radar for the coming months.

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John Mackie, CEO of Whole Foods Market, a subsidiary of Amazon, is a board member of The Motley Fool. Ryan Downey has positions in Amazon. Motley Fool has positions and recommends Amazon. The motley fool has a disclosure policy.

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