© Reuters. Top Wall Street strategists give their S&P 500 predictions for 2023
By Senad Karaahmetovic
2022 has been a year to forget for stock market investors. As of December 23, the is down almost 20% since the beginning of the year (YTD). After three consecutive years of positive returns, the benchmark U.S. stock index is expected to post the worst annual performance since 2008.
2022 – A difficult year for investors
The global stock market has seen a massive setback over the past few decades – high inflation and extremely aggressive tightening by the world’s major central banks, led by the .
While the energy sector has outperformed, some COVID beneficiaries – like DocuSign (NASDAQ: ), Roku (NASDAQ:) and Peloton (NASDAQ:) – have been cleared. The Tech heavy index is down almost 33% since the start of the year.
The historic Fed shift saw the central bank raise interest rates by a cumulative 4.25% this year. Fed Chairman Jerome Powell has repeatedly said the Fed has “more work to do” regarding the fall.
Goldman Sachs analysts expect the Fed to raise its benchmark interest rate further to 5.0-5.2%.
“We doubt the FOMC will cut the funds rate until the economy threatens to enter a recession, and we don’t expect that to happen next year,” Goldman strategists said. in a customer note.
What are the prospects for 2023?
Even mega-cap names weren’t immune to the stock market selloff. Meta Platforms (NASDAQ:) and Tesla (NASDAQ:) are both down 65% year-to-date, while Amazon (NASDAQ:) is down nearly 50%.
While the 2022 sell-off in the S&P500 was mainly driven by inflation and central bank tightening, equity strategists believe that the next drop will be due to negative estimate revisions.
The current market consensus expects the S&P 500 to gain around $216 in 2023. More optimistic analysts see S&P 500 earnings at around $220, implying roughly flat growth from 2022.
On the other hand, a group of more bearish equity analysts believe that EPS will drop around 10% to $200. The most vocal bears are analysts at Morgan Stanley and Bank of America.
“We remain a firm believer that the bear market in equities will not be over until the S&P 500 hits our baseline and downside tactical target range – i.e. 3000-3400 plus late this fall,” Morgan Stanley analysts told their clients. .in September.
So, where are we for 2023? The average price target for the S&P 500 is currently at 4,080. This is based on forecasts from 23 analysts.
Top Street strategists share their S&P 500 predictions for 2023
Here are the views of 5 prominent Street strategists on what investors can expect from the S&P 500 in 2023.
JP Morgan“We expect market volatility to remain high (on average ~25) with another round of equity declines, especially after the year-end we are calling for and the S&P 500 multiple approaching 20x. More Specifically, in 1H23, we expect the S&P 500 to retest this year’s lows as the Fed overtightens on weaker fundamentals.
“This selloff combined with disinflation, rising unemployment and falling business sentiment should be enough for the Fed to start signaling a pivot, subsequently driving assets higher and pushing the S&P 500 to 4,200d. ‘by the end of 2023.”
Bank of America“We remain carriers of risky assets in H1, likely to become bullish in H2; Market story to move from inflation and rates “shocks” of 22 to recession and credit “shocks” in H1’23, then to a more bullish story of inflation “spikes”, fed funds, of bond yields and the US dollar in H2’23. ”
“2023 implemented in 2023 less bearish than in 2022; the bear market for bonds and equities means much greater investor pessimism compared to a year ago; and v unlikely that central banks will raise rates another 280 times in 23; BofA expects cautiously positive returns.
Morgan StanleyConsensus projections still call for S&P 500 earnings per share (EPS) of around $220 for 2022 and $230 for 2023, implying year-over-year growth. Such a scenario ignores the likelihood that companies will simultaneously face declining volumes and a loss of pricing power, ushering in strong negative operating leverage.
“Our 2023 EPS forecast for the S&P 500 of $195 is consistent with a pullback of 15% to 20% from the current index price, which we believe will be followed by a rally through the end of the year at an essentially flat level compared to today.”
City: “The risk of recession next year remains a major concern. Implicit in our S&P 500 price and earnings forecasts is that this may be the most widely anticipated recession in decades. Thus, investors must recognize that historical recession comparisons may need context.
“US Citi Economists Project 2H ’23 Recession”. Still, we suspect fundamental and performance effects will be felt for 1H. The key debate is to what extent the risk of recession is taken into account. The S&P 500 PE has already contracted to post-Tech bubble levels. Our view is that the multiple conflict impact of rising rates is largely to blame. From there, the earnings result becomes most relevant. While consensus expectations still look aggressive, we argue that “the 23-year earnings decline will be less than expected relative to historical recession analogies.”
Jefferies“US equities are getting mixed signals – a falling dollar (reflationary), a deep curve inversion (tough for growth) and moderating inflation expectations (good for long-term assets). The vagaries of shift effects on the different sectors explain most of the confusion. China is poised to provide a countertrend to the US slowdown, further muddying the picture in 2023.”
“We expect negative EPS growth of 6.5% in 2023 (integer EPS: 204) with an unchanged S&P 500 target of around 4,200 – the latter being helped by falling US Treasuries.”
Conclusion
The stock market has had a rough year and many analysts are not expecting much from the year 2023 ahead. As consensus builds for a selloff in the first half of next year amid negative estimate revisions, the next year may finally offer a final buying opportunity before the Fed is finally forced to begin. cut rates in 2024 to support the economy in recession.
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