This post was originally published on TKer.co
It’s that time of year when Wall Street’s top strategists tell clients where the stock market is headed in the coming year.
Typically, the average forecast for the group predicts the S&P 500 to rise about 10%, in line with historical averages.
This time it’s the pros unusually cautious With expect the most the S&P lower at the end of 2023 than today.
There are hundreds of pages of research and analysis that accompany these strategists’ forecasts. The general themes: Most Wall Street firms expect the US economy to enter recession sometime in 2023. Many believe 2023 earnings forecasts have more room for cuts, and some believe these downward revisions mean a lot of volatility for stocks at the start of 2023. At the same time, many also expect a definite drop in inflation, which the US Federal Reserve said would give the go-ahead to ease its restrictive monetary policy stance. At least some strategists believe that if the economy worsens significantly, the Fed could even return to cutting interest rates.
Wall Street is unusually skeptical about 2023. (Image: Getty)
All in all, strategists expect a volatile first half to be followed by a lighter second half in which stocks could rise slightly.
Below is a summary of 16 of these predictions for 2023 for the S&P 500, including highlights from Strategist Commentary. Targets range from 3,675 to 4,500. The S&P closed at 4,071 on Friday, implying returns between -9.7% and +10.5%.
Barclays: 3,675, $210 EPS (as of 21 November 2022) “We recognize some upside risks to our scenario analysis given post-peak inflation, strong consumer balance sheets and a resilient labor market. However, current multiples are baking in a sharp moderation in inflation and ultimately a soft landing, which we continue to believe is a low probability event.”
Societe Generale: 3,800 (As of Nov 30) “Bearish but not as bearish as 2022 as the yield profile should be much better in 2023 as Fed rate hikes near the end of this cycle. Our “hard soft landing” scenario calls for EPS growth to recover to 0% in 2023. We expect the index to trade in a broad range as we see negative earnings growth in 1H23, Fed pivot in June 2023 and China reopening in 3Q23 and US recession in 1Q24.”
Capital Economy: 3,800 (As of 10/28) “We expect global economic growth to disappoint and the world to slip into recession, causing further pain for global equities and credit. But we don’t expect a particularly long downturn from here: around mid-2023, the worst could be behind us and risky assets could bounce back in a more sustainable way, in our view.”
Morgan Stanley: 3,900, $195 EPS (as of Nov 14) “We are 16% below consensus for the EPS 23 on our baseline scenario and 11% below the full year growth standpoint. From what’s left of this current tactical rally, we see the S&P 500 pricing in profit risk from 23 above a ~3000-3300 bottom sometime in the 123rd quarter. We believe this is happening ahead of the eventual bottom in earnings per share, which is typical of earnings recessions.”
UBS: 3,900, $198 per share (as of Nov. 8) “With UBS economists forecasting a US recession for Q2-Q4 2023, the setup for 2023 is essentially a race between declining inflation and financial conditions versus the impending slowdown in growth and Win. History shows that growth and earnings will continue to deteriorate to market lows before financial conditions ease significantly.”
Cities: 3,900, $215 EPS (as of Nov 18) “The implication in our view is that post-recession multiples tend to rise as EPS in the denominator continue to fall as the market on the other side begins to price in a recovery. However, part of this multiple extension has a rate connection. The monetary policy stimulus to lower interest rates is lifting the economy many-fold as it works its way out of the depths of the recession.”
BofA: 4,000, $200 EPS (as of Nov 28) “But there’s a lot of volatility here. Our bull case, 4600, is based on our sell-side indicator being as close to a “buy” signal as previous market lows have been – Wall Street is bearish, which is bullish. Our bear fall from stressing our signals is 3000.”
Goldman Sachs: 4,000, $224 EPS (as of Nov 21) “US stock performance in 2022 has been all about a painful rating downgrade, but the stock story for 2023 will be about the lack of EPS growth. Zero earnings growth equates to zero appreciation in the S&P 500.”
HSBC: 4,000$225 EPS (as of 4 October) “…we believe valuation headwinds will persist well into 2023 and most downside over the coming months will come from slowing profitability.”
Credit Suisse: 4,050$230 EPS (as of October 3) “2023: A year of weak, non-recessionary growth and falling inflation”
RBC: 4,100$199 EPS (as of Nov 30) “We think the path to 4,100 in 2023 is likely to be choppy with a possible retest of October lows earlier in the year if earnings forecasts are cut, Fed policy As a transition approaches (stocks tend to fall before definitive cuts), investors are digesting the start of a challenging economy.”
JPMorgan: 4,200, $205 (as of Dec 1) “…we expect market volatility to remain high (VIX averages ~25) with another round of declines in equities, particularly after our requested year-end and S&P 500 multiple approaches 20 times. More specifically, we expect the S&P 500 to retest this year’s lows in 1H23 as the Fed stretches weaker fundamentals. This sell-off, combined with disinflation, rising unemployment and falling business sentiment, should be enough for the Fed to signal a turnaround, then fuel an asset recovery and propel the S&P 500 to 4,200 by year-end 2023.”
Jefferies: 4,200 (As of Nov. 11) “In 2023, we expect bond markets to search for the Fed’s final interest rate, while equity markets are in ‘no man’s land’ and earnings will continue to fall as growth and margins disappoint.”
BMO: 4,300, $220 EPS (as of Nov. 30) “We still expect the S&P 500 to rally in December, even if stocks fall short of our 2022 year-end target of 4,300. Unfortunately, given the ongoing tug-of-war between Fed news and market expectations, we believe it will be difficult for equities to end 2023 much higher than current and expected levels.”
Wells Fargo: 4,300 to 4,500 (As of August 30) “Our single and consistent message since early 2022 has been to play defense in portfolios, which practically means make patience and quality the watchwords of the day. Holding on to those words, it implies that long-term investors in particular can exercise patience to potentially turn time into an asset. While we await an eventual economic recovery, the long-term investor can use available cash to gradually and disciplinedly add to the portfolio.”
Deutsche Bank: 4,500, $195 per share (as of Nov. 28) “Equities markets should move up in the short term, tumble as the US recession hits, and then recover fairly quickly. We see the S&P 500 at 4500 in H1, down more than 25% in Q3 and back to 4500 by year-end 2023.”
The story goes on
The range of forecasts is quite wide this year, and different surveys come up with very different results. Bloomberg surveyed 17 strategists who had an average forecast of 4,009. The Portal poll of 41 strategists returned a median forecast of 4,200. (CNBC publishes its poll here, but it’s not yet updated with 2023 targets.)
🙋🏻♂️ I say two things about one-year course goals.
First, don’t obsess over those one-year goals if you don’t have to. Here’s what I wrote last December:
⚠️ It’s incredibly difficult to predict with any accuracy where the stock market will be a year from now. In addition to the myriad variables to consider, there are also the totally unpredictable developments that occur along the way. Strategists often revise their goals as new information arrives. In fact, some of the numbers you see above represent revisions to previous forecasts. For most of you, it probably isn’t wise to overhaul your entire investment strategy based on a one-year stock market forecast. Nevertheless, it can be fun to pursue these goals. It helps you get a sense of how optimistic or pessimistic different Wall Street firms are.
Second, most of the stock strategists that TKer follows produce incredibly rigorous, high-quality research that reflects a deep understanding of what drives the markets. The most valuable thing these pros have to offer has little to do with annual goals. (And in my years of interacting with many of these people, at least some of them don’t care about the practice of posting yearly goals. They do it because it’s popular with clients.) Don’t just discard all of their work because their one-year target is off. And don’t be surprised if I highlight your views in future newsletters.
Good luck in 2023!
This post was originally published on TKer.co
Sam Ro is the founder of TKer.co. Follow him on Twitter at @SamRo
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