Among the biggest risks for the market are the Federal Reserve pushing the economy into recession as it raises rates to combat rampant inflation and US corporate profit growth stalling, the strategists said.
The benchmark S&P 500 index would end next year at 4,200 pointsaccording to the median forecast of 41 strategists polled by Reuters over the past two weeks. That is 6% higher than Monday’s close of 3,963.94.
That median estimate for the end of the year 2023 is below the 4,700 target in a Reuters poll conducted in late August.
“It’s a story of two halves. We see the market having a tougher start to the year and closing the year in recovery mode.”Savita Subramanian, head of US equities and quant strategy at BofA Securities, said at the firm’s outlook conference on Monday.
The firm expects the S&P 500 to end next year at 4,000 points, and expects a mild recession in the first half of 2023 and an easing of the Fed’s monetary policy by the end of next year.
Wall Street stocks have risen sharply in recent weeks, partly on the hope that the Fed will be less aggressive in its rate hikes. In early November, the Fed decided on a fourth consecutive interest rate hike of 75 basis points.
But the S&P 500 is still down nearly 17% year-to-date after falling into its second bear market since the 2020 global selloff caused by the coronavirus pandemic.
Professional strategists for the most part have had a poor track record of predicting stock market returns, especially at the start of a new year because so much is still unknown, yet their forecasts provide valuable insight into confidence on Wall Street.
Most of the strategists surveyed expected the The earnings outlook will worsen over the next six months rather than improve, with some projecting no growth in earnings for the S&P 500 in 2023.
Analysts project fourth-quarter earnings for US firms to decline for the first time in two years, according to IBES data from Refinitiv, and estimates have also been falling for 2023.
They are forecasting a full-year earnings growth for 2023 of 4.9% compared with estimated growth of 5.8% for all of 2022, according to the data.
Earnings estimates are closely watched because of their impact on stock valuations. The S&P 500’s 12-month price-earnings ratio is now around 18 compared with 22 at the end of December 2021 and a long-term average of about 16, according to Refinitiv data.
“There is still uncertainty about earnings, whether or not that will stabilize. But towards the middle of the year is when rates can start to come down.”said King Lip, chief strategist at BakerAvenue Wealth Management in San Francisco. He sees that the S&P 500 will end next year at 4,400 points.
Source: Ambito
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