Wall Street's top stock market strategists are advising customers about where they believe the stock market will go in the coming year.
Stocks are expected to climb, but gains will be restricted due to high valuations. Earnings growth should be robust, driven by consumer spending and capital spending. Risks include supply chain concerns reoccurring, labor shortages lasting, and monetary policy tightening faster than planned. Most of these forecasts were made prior to the Omicron variant's appearance, but analysts essentially believe that the economy is better equipped for subsequent waves of Covid infections.
The following summarizes 14 of these 2022 S&P 500 forecasts, with highlights from the strategists' remarks. The goals vary from 4,400 to 5,300. The S&P 500 finished Friday at 4,538, implying gains ranging from -3% to +17%:
Barclays - 4,800: "Household and corporate cash hoards could underpin modest profits growth, but supply chain issues, a return to trend in goods demand, and a severe landing in China are important tail risks."
DWS, David Bianco - 5,000: "Earnings growth will boost 2022 returns." Higher volatility, including intra-year sector rotations that might be large depending on actual yield levels."
JPMorgan, Dubravko Lakos-Bujas - 5,050: "While there have been isolated setbacks with COVID-19 variations (e.g. delta, omicron), this must be considered in the context of increased natural and vaccine-acquired immunity, much decreased mortality, and novel antiviral medicines... With this in mind, the most significant risk to our view is a hawkish move in [central bank] policy, particularly if post-pandemic dislocations linger (e.g., longer delays in China reopening, supply-chain concerns, and labor shortages)."
Yardeni Research, Ed Yardeni - 5,200: "Assuming, as I do, that Omicron, the new variant of Covid, will turn out to be no worse than the Delta variant, I still expect the S&P 500 to In reaction to higher-than-expected inflation, the Fed may opt to accelerate tapering. However, it would still be pouring liquidity to the economy's punch bowl, although at a slower rate, given the economy already has plenty of liquidity thanks to prior rounds of the Fed's generosity."
Bank of America, Savita Subramanian - 4,600: "Drivers for our outlook: a higher discount rate, US GDP primacy vs. China, growing capex but slowing consumption, the end of the 'equity shrinkage' bull case."
Jefferies, Sean Darby - 5,000: "Growth – Real and Nominal – is not expected to be an issue in 2022 as the US consumer, business, government, and maybe banks release their spending. However, base effects act against earnings and high values. Thus market multiples are important."
BNP Paribas, Greg Boutle - 5,100: "As rates increase, we anticipate to see some compression of price/earnings ratio multiples." Strong profits growth, on the other hand, may still translate into a 10% total return, in our opinion."
BMO, Brian Belski - 5,300: "An accommodating Fed, meager interest rates, possible peaking inflation, and supply chain issues, and solid profit growth REMAINS a very favorable formula for stocks – PERIOD.”
Goldman Sachs, David Kostin - 5,100: "Decelerating economic growth, a tighter Fed, and increasing real rates mean investors should anticipate moderately below-average returns next year. In periods of robust but decreasing economic growth and rising actual interest rates, the S&P 500 has historically delivered an average 12-month return of 8%..."
Wells Fargo Investment Institute - 5,300: "We anticipate supportive monetary policy, as well as public and private expenditure, to propel equities markets upward throughout the year."
Morgan Stanley, Michael Wilson - 4,400: "With financial conditions tightening and earnings growth stalling, the 12-month risk/reward for the broad indexes appears unfavorable at present levels. Nominal solid GDP growth, on the other hand, should continue to offer active managers with lots of solid stock investment possibilities."
RBC, Lori Calvasina - 5,050: "As for why we feel constructive (aside from the strong economy), cash deployment trends are positive, frothy earnings revisions are no longer an overhang on the market, individual investor sentiment recently turned so bearish that it briefly gave a contrarian buy signal for the stock market in October, and fiscal policy tilts supportive with corporate tax hikes less of a threat. Investors have been concerned about the start of tapering, and the closeness of Fed rises, but equities typically rise after liftoff as long as the economy is strong enough to absorb it."
UBS, Keith Parker - 4,850: "We anticipate S&P 500 EPS to grow to $60 in Q2 '22, inclusive of a tax hit, which would support 5,000+ for the S&P on a 21x trailing P/E. However, slower-than-expected economic growth in H2 '22, as well as a flattening out of quarterly earnings at $60, should imply gains are front-loaded next year."
Credit Suisse, Jonathan Golub - 5,000: "As vacant shelves are refilled, and pricing power is maintained, we see upside to projections. As the unemployment rate falls more and earnings rise, consumer spending should improve.”
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