Top Wall Street Strategists Reveal Their 2023 S&P 500 Predictions By Investing.com

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© Reuters. Wall Street’s top strategists present their S&P 500 forecast for 2023

By Senad Karaahmetovic

2022 was a year to forget for stock market investors. As of Dec. 23, it is down nearly 20% year-to-date (YTD). After three straight years of positive returns, the US stock market benchmark is set to record its worst annual performance since 2008.

2022 – A challenging year for investors

The global stock market experienced a massive pullback due to decades-long high inflation and the extremely aggressive tightening of the world’s major central banks, led by the .

While the energy sector has outperformed, some COVID beneficiaries – such as DocuSign (NASDAQ:), roku (NASDAQ:) and Peloton (NASDAQ:) – have been obliterated. The heavy tech index is down nearly 33% year-to-date.

The Fed’s historic move saw the central bank raise interest rates by a cumulative 4.25% this year. Fed Chairman Jerome Powell has said on several occasions that the Fed has “more work to do” when it comes to tipping.

Goldman Sachs analysts expect the Fed to further raise its benchmark interest rate to 5.0-5.2%.

“We are skeptical that the FOMC will cut the funds rate until the economy is threatening to slip into a recession, and we don’t expect that to happen in the next year,” Goldman strategists said in a client note.

What are the prospects for 2023?

Even mega-cap names haven’t been immune to the broader stock market sell-off. Meta Platforms (NASDAQ:) and Tesla (NASDAQ:) are down 65% year-to-date, while Amazon (NASDAQ:) is down nearly 50%.

While the 2022 sell-off in the S&P 500 was mainly driven by inflation and central bank tightening, equity strategists believe the upcoming dip will be driven by negative forecast revisions.

Current market consensus expects the S&P 500 to earn around $216 in 2023. More bullish analysts see the S&P 500 earnings at around $220, implying roughly flat growth compared to 2022.

On the other hand, a more bearish group of equity analysts believe that earnings per share will fall about 10% to $200. The most vocal bears include analysts at Morgan Stanley and Bank of America.

“We remain highly convinced in our view that the equity bear market will not end until the S&P 500 reaches the range of our tactical Base and Bear case targets – namely 3000-3400 – later this fall,” analysts at the Morgan Stanley to clients. In September.

So where are we for 2023? The average price target for the S&P 500 at the moment is 4,080. This is based on forecasts from 23 analysts.

Average price target predictions for S&P 500

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 elevated (averaging ~25) with another round of declines in equities, especially after the year-end run we’re asking for and the S&P 500 multiple approaching 20x. More precisely, in 1H23, we expect the S&P 500 to retest this year’s lows as the Fed tightens too much on weaker fundamentals.”

“That selling combined with disinflation, rising unemployment and declining corporate sentiment should be enough for the Fed to start signaling a pivot, further fueling an asset recovery and pushing the S&P 500 to 4,200 by the end of 2023.”

Bank of America: “We remained bearish risk assets in the first half, probably turned bullish in the second half; market narrative to shift from inflation and rates from ’22 ‘shocks’ to recession and credit ‘shocks’ in the first half of 2023, after that a more upbeat story of inflation ‘spikes’, Fed funds, bond yields and US dollars in the second half of 2023.”

“The 2023 configuration for 2023 is less pessimistic than for 2022; bear market in bonds and stocks means much greater investor pessimism than in the previous year; ev unlikely central banks raise rates another 280 times in 23; BofA expected cautiously positive returns.”

morgan stanley: “Consensus projections still call for S&P 500 earnings per share (EPS) of approximately $220 for 2022 and $230 for 2023, implying year-over-year growth. Such a scenario does not take into account the likelihood that companies will simultaneously encounter declining volumes and loss of pricing power, leading to powerful negative operating leverage”.

“Our 2023 EPS forecast for the S&P 500 of $195 is consistent with a 15% to 20% pullback from the current index price, which we expect to be followed by a recovery by the end of the year to a essentially stable today.”

Citi: “The risk of next year’s recession remains a key focus. Implicit in our S&P 500 index price and earnings expectations is the view that this may be the most anticipated recession in decades. So investors need to allow for historical recession comparisons that may need context.”

“US economists at Citi are projecting a recession in the second half of 2023. However, we suspect fundamental and performance effects will be felt during 1H. The main debate is how much recession risk is priced in. The S&P 500 PE has already contracted to post-tech bubble levels. Our view is that the multiple contraction impact of rising rates is largely overdue. From here, the earnings result becomes more relevant. While consensus expectations still look aggressive, we argue that the 23 earnings decline will be smaller than expected relative to historical recession analogies.”

Jefferies: “US equities are getting mixed signals – a falling dollar (reflationary), a deep curve inversion (hard for growth), and subdued inflation expectations (good for long-lived assets). The vagaries of lagged effects across different industries account for most of the confusion. China should provide a countertrend to the US downturn, further confounding the picture in 2023.”

“We expect negative EPS growth of 6.5% in 2023 (full EPS: 204) with an unchanged S&P 500 target of ~4,200 – the latter helped by falling US Treasuries.”

Conclusion

The stock market has had a tough year and many analysts are not expecting much in the coming year of 2023. While consensus is growing for a sell-off in the first half of next year due to negative forecast revisions, next year may finally yield an opportunity. final purchase before the Fed is eventually forced to start cutting rates in 2024 to support the recessionary economy.

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