So what's priced in? So much for defensive plays. Consumer Staples reacting so poorly to Walmart and Target, and Thursday to Kohl's , which cut its fiscal 2022 earnings, tells you there is additional growth and earnings risk out there. A lot of investors have come to believe that interest rate risk from the Federal Reserve raising rates was priced into the market. Now we can see that investors have not sufficiently priced in a growth risk (recession), nor have Wall Street analysts begun to address the earnings risk. Earnings estimates for 2022 remain remarkably high, with analysts overall expecting a roughly 9% increase in earnings over 2021, and an additional 10% gain for 2023: S & P 500 earnings estimates 2021 $208.12 2022 $228.58 2023 $251.06 Source: Refinitiv But that is going to change. We have heard from Target and Walmart, two of the best companies in the world, indicating they are having trouble managing costs and inventories. If Target and Walmart are having trouble managing this, the market is now coming to believe it will be a problem for everyone. What will happen next? The analysts will start cutting, but by the time they've rightsized estimates the market will have already moved, as it is doing now. What's the right estimate for earnings? That's impossible to know right now, but it's certainly unlikely we will see a 9% increase in earnings this year. If we assume earnings are flat for this year, than it's reasonable to assume that the market would have to drop another roughly 9%, assuming the multiple stays the current 17 times forward earnings. How do you call a bottom? It's not possible until there is evidence inflation is peaking, and we don't have that yet. Commodity prices are the only real-time indicators we have, and they are not moving in the right direction. Two observations: 1) Stock analysts are way behind the curve — unfortunately they don't add any value when markets are at inflection point. 2) The "consumer is strong" story is wearing thin. By the fall that is likely to be over. By September or October, much of the consumer's pent-up demand will be spent. Netflix noted peak streaming. Next, peak travel.