Wall Street’s 2022 stock forecasts were off by the widest margin since 2008: Will next year be different?

Wall Street is often wrong when it comes to anticipating where stocks will trade a year from now. But in 2022, its forecasters were poised to miss the mark by the widest margin in nearly 15 years, according to data compiled by FactSet.

Wall Street stock analysts were on track to overestimate the performance of the S&P 500 Index in 2022 by nearly 40% as of Tuesday, according to the median upward forecast compiled by FactSet senior earnings analyst John Butters. That would mark their biggest mistake since 2008 when analysts were 92% overscheduled.

A year ago, stock analysts were targeting the S&P 500 SPX,
+1.43%
ending 2022 at 5,264.51, according to FactSet data. That turned out to be wildly off: The large-cap index was trading just north of 3,800 at Tuesday’s close.

This year, however, Wall Street’s top strategists have been more cautious, spend a lot of time cutting your end-of-year stock market goals while the Federal Reserve kept raising rates to fight stubbornly high inflation and causing volatility in markets including stocks, bonds, currencies and commodities to explode.

The damage being felt in financial markets sends the S&P 500 down about 20%, the pace of its worst year since 2008, when it plunged nearly 40%, according to Dow Jones Market Data.

S&P 500 Estimates

A recent survey of top Wall Street forecasters by MarketWatch put the median estimate for the S&P 500 at 4,031 by the end of 2023, an advance of only about 6% from Tuesday’s close of 3,821.62. To arrive at that average (see chart), MarketWatch compiled estimates from 18 investment banks and brokers.

Sign

Strategist

S&P 500 Target

german bank

binky chadha

4500

oppenheimer

John Stoltzfus

4,400

BMO

brian belski

4,300

scotiabank

Hugo Ste-Marie

4,225

jefferies

Sean Darby

4200

JPMorgan

marko kolanovic

4200

cantor fitzgerald

eric johnson

4,100

RBC Capital Markets

Lori Calvasina

4,100

swiss credit

jonathan golub

4,050

Bank of America

brian harnett

4,000

Goldman Sachs

david costin

4,000

HSBC

Max Kettner

4,000

Citigroup

scott cronert

3,900

Morgan Stanley

mike wilson

3,900

UBS

Keith Parker

3,900

barclays

venu krishna

3,725

general society

manish kabra

3,650

BNP Paribas

greg bottle

3,400

Average

4,031

Some estimates, including those of Barclays PLC BCS’s chief macroeconomic and capital strategists,
+1.00%,
MS Morgan Stanley,
+2.20%,
Citigroup Inc C,
+2.31%
and UBS Group AG UBS,
+2.97%
expects the S&P 500 to end next year below 4,000.

However, the group’s forecasts spread out over an unusually wide range, market strategists told MarketWatch.

At the low end, BNP Paribas’ Greg Boutle expects a continued decline in shares next year, with the S&P 500 ending 2023 at 3,400. Deutsche Bank’s Binky Chadha, who has the group’s highest year-end target, expects the index to end next year at 4,500.

Additionally, a FactSet survey of equity analysts produced an upward forecast for the S&P 500 of 4500 by the end of 2023. That would represent an advance of about 18% based on the index’s closing level on Tuesday.

What about a recession?

Many macro strategists said in their 2023 outlook that they expect the US economy to slide into a recession by mid-year, further undermining stock valuations as corporate profits plummet and unemployment rises. .

In particular, GS from Goldman Sachs,
+1.73%
Chief economist Jan Hatzius expects US economic growth to slow but avoid a recession.

One of the main pillars supporting stock valuations has been the expectation that stocks will bottom out in the first half of next year, before recovering in the second half of 2023, as inflation recedes and unemployment rises. , allowing the Federal Reserve to begin cutting interest rates. No risk of hyperinflation.

While even Fed Chairman Jerome Powell has said there are no guarantees as to where monetary policy will need to reduce inflation specifically, Lingering expectations have been that the Fed will finally “walk away” from its hawkish rate stance sometime next year, which has helped prop up equities.

Movements in federal funds futures, which are used by traders for hedging and speculation purposes, appear to confirm this view, according to data from the CME Group’s FedWatch tool.

Investors have continued to cling to hopes of a Fed rate cut by the end of 2023, futures show, even as the Fed’s latest “dot plot,” released earlier this month, suggests bankers Senior centrals do not expect to cut rates until 2024. .

Many investors expect stocks to bottom out in the first half of 2023, as the Fed’s aggressive rate hikes finally take a toll on the economy.

JPMorgan Chase & Co. JPM,
+1.20%
Marko Kolanovic, who was one of the most optimistic strategists on Wall Street by 2022, he is of this opinion, as he confirmed to MarketWatch by email.

Morgan Stanley’s Michael Wilson, one of the few Wall Street equity strategists to anticipate this year’s crash, endorsed a similar view when he described 2023 as a “tale of two halves” in a research note dated Dec. 19. Wilson believes the S&P 500 will bottom out in the first quarter of 2023, creating an “excellent buying opportunity”.

Bulls and Bears: Totally Different Perspectives

A look outside of the major investment banks shows bulls and bears with dramatically different views of how they expect the next year to play out.

Tom Lee, head of research at Fundstrat Global Advisors, expects the S&P 500 to advance to 4,750 next year based on his expectation that inflation will continue to recede. Lee has polished his reputation as a stock market bull, defending his calls for stocks to continue to rise in frequent appearances on business television networks such as CNBC.

In a recent elaboration of his 2023 outlook, Lee noted that instances of U.S. stocks falling for two consecutive years have been rare since World War II.

Furthermore, double-digit retracements, which look likely this year, have often been followed by particularly torrid rebounds, as historical data shows.

The S&P 500 has advanced 13.5%, on average, in the years since a pullback, according to Lee’s analysis of historical data going back to 1946.

FUNDSTRAT

On the other hand, stock market bears like Chris Senyek, chief investment strategist at Wolfe Research, expect the pain in stocks to persist into next year. In a recent report, Senyek explained why he believes the US economy will collapse next year while inflation will remain stubbornly persistent. leading to “stagflation”.

A 35% retracement?

As a result, Senyek expects the S&P 500 to potentially fall as much as 35% next year. A drop of that magnitude from Tuesday’s close would take the S&P 500 to around 2,500, a level last touched in the wake of the March 2020 crash, according to FactSet.

“We believe that the number of [monetary] The tightening that has already taken place is enough to push the US economy into recession, with US real GDP growth reaching -2% to -3% in a [year-over-year] sometime in 2023,” Senyek said in a note.

The S&P 500 is down about 20% this year through Tuesday, while the Dow Jones Industrial Average DJIA,
+1.50%
fell 10% and the Nasdaq Composite COMP,
+4.09%
fell almost 33%.

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