Wall Street’s 2023 outlook for stocks

This post was originally posted on TKer.co

It’s that time of year when top Wall Street strategists tell clients where they see the stock market heading in the coming year.

Typically, the group’s average forecast is for the S&P 500 to rise by around 10%, which is in line with historical averages.

This time the pros are exceptionally careful with the most anticipated the S&P to end 2023 lower than it is today.

There are hundreds of pages of research and analysis that accompany the forecasts of these strategists. The general themes: Most Wall Street firms expect the U.S. economy to enter a recession in 2023. the downside means a lot of volatility for stocks in the beginning. of 2023. At the same time, many also expect an unambiguous decline in inflation, which would give the Federal Reserve permission to ease its hawkish monetary policy. At least some strategists believe that if economic conditions deteriorate significantly, the Fed may even start cutting interest rates again.

Overall, strategists expect a volatile first half to be followed by an easier second half, which could see stocks climb slightly higher.

Below is a summary of 16 of these 2023 forecasts for the S&P 500, including highlights from the strategists’ comments. Targets range from 3,675 to 4,500. The S&P closed Friday at 4,071, implying returns of between -9.7% and +10.5%.

• Barclays: 3,675, EPS of $210 (as of Nov 21, 2022) “We recognize some upside risks in our scenario analysis given post-peak inflation, strong consumer balance sheets and a resilient labor market. However, the current multiples come with a strong moderation in inflation and ultimately a soft landing, which we continue to view as a low probability event. »

• Societe Generale: 3,800 (as of Nov 30) “Bearish but not as bearish as 2022 as the return profile should be much better in 2023 as the Fed hike comes to an end for this cycle. Our “soft landing” scenario calls for a rebound in EPS growth to 0% in 2023. We expect the index to trade in a wide range as we expect negative earnings growth in 1H23, a Fed pivot in June 2023, the reopening of China in 3Q23 and a US recession in 1Q24.

• Capital savings: 3,800 (as of October 28) “We expect global economic growth to disappoint and the world to slide into a recession, which will cause more pain for global equities and corporate bonds. But we don’t anticipate a particularly prolonged downturn from here: towards mid-2023, the worst could be behind us and risky assets could, in our view, begin to rally again in a more sustained fashion. »

• Morgan Stanley: 3,900, EPS of $195 (as of Nov 14) “That leaves us 16% below consensus EPS of 23 in our base case and down 11% from a year-over-year growth perspective. other. After what remains of this current tactical rally, we see the S&P 500 discounting 23 earnings risk in Q123 via a price bottom around 3000 to 3300. We believe this is happening ahead of the eventual trough in EPS, which is typical of earnings recessions. “

• UBS: 3,900$198 EPS (as of Nov 8) “With UBS economists predicting a U.S. recession for Q2-Q4 2023, the setup for 2023 is essentially a race between easing inflation and financial conditions per versus the coming hit to growth + earnings History shows that growth and earnings continue to deteriorate to market lows before financial conditions improve materially.

• City: 3,900, EPS of $215 (as of Nov 18) “We implicitly believe that multiples tend to rise coming out of recessions as EPS in the denominator continues to fall as the market begins to assess the recovery on the other side. Part of this multiple expansion, however, has a tariff connection. The monetary policy impulse to lower rates is raising multiples as the economy claws its way out of the depths of recession.

• BoA: 4,000, $200 EPS (as of Nov. 28) “But there’s a lot of variability here. Our bullish case, 4600, is based on our sell-side indicator being as close to a “buy” signal as it was in past market lows – Wall Street is bearish, which is bullish. Our bear case stressing our signals earns 3000.”

• Goldman Sachs: 4,000, EPS of $224 (as of Nov 21) “U.S. equity performance in 2022 was all about painful devaluation, but the equity story for 2023 will be about the lack of EPS growth. Zero earnings growth will correspond to zero appreciation of the S&P 500.“

• HSBC: 4,000$225 EPS (as of Oct 4) “…we believe valuation headwinds will persist through 2023, and most of the declines in the months ahead will come from slowing profitability.”

• Credit Suisse: 4,050EPS of $230 (as of Oct. 3) “2023: A year of weak, non-recessionary growth and falling inflation”

• RBC: 4,100$199 EPS (as of Nov 30) “We believe the path to 4,100 will likely be choppy in 2023, with a potential retest of October lows early in the year as earnings forecasts are reduced, policy the Fed is approaching a transition (stocks tend to fall before final cuts), and investors are digesting the start of a tough economy.

• JPMorgan: 4,200$205 (as of Dec 1) “…we expect market volatility to remain elevated (VIX averaging ~25) with a further round of equity declines, particularly post year-end that we claim and the S&P 500 multiple approaching 20x.Specifically, in 1H23, we expect the S&P 500 to retest this year’s lows as the Fed overtightens on weaker fundamentals. sell-off 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 4,200 by the end of the year 2023.”

• Jefferies: 4,200 (as of Nov. 11) “In 2023, we expect bond markets to probe the Fed’s terminal rate, while equity markets will be in ‘no man’s land’ as earnings continue to decline as growth and the margins disappoint.”

• BMO: 4,300EPS of $220 (as of Nov 30) Unfortunately, we believe it will be difficult for stocks to end 2023 much higher than current and expected levels given the ongoing tug of war between Fed messages and market expectations.

• Wells Fargo: 4,300 to 4,500 (as of August 30) “Our unique and consistent message since the start of 2022 has been to play defense in portfolios, which practically means making patience and quality the daily watchwords. Sticking firmly to these words implies that long-term investors, in particular, can exercise patience to potentially turn time into advantage. As we wait for an eventual economic recovery, the long-term investor can use available cash to gradually and disciplinedly add to the portfolio.

• Deutsche Bank: 4,500, EPS of $195 (as of Nov 28) “Equity markets are expected to rise in the near term, dip when the US recession hits, then recover fairly quickly. We see the S&P 500 at 4,500 in the first half, down more than 25% in the third quarter and back to 4,500 by the end of 2023.”

The story continues

The range of forecasts is quite wide this year, and therefore different surveys yield very different results. Bloomberg polled 17 strategists who had an average forecast of 4,009. Reuters’ poll of 41 strategists found a median forecast of 4,200. (CNBC publishes its survey here, but it’s not yet updated with the 2023 goals.)

🙋🏻‍♂️ I will say two things about one-year price targets.

First, don’t obsess over those one-year goals if you don’t have to. Here is what I wrote last December:

Second, most of the equity strategists tracked by TKer produce incredibly rigorous, high-quality research that reflects a deep understanding of what drives the markets. The most valuable things these pros have to offer have nothing to do with one-year goals. (And in my years of interacting with a lot of these people, at least a few of them don’t care about the year-long goal posting exercise. They do it because it’s popular with clients.) Don’t dismiss all of their work just because their one-year goal isn’t up to scratch. And don’t be surprised to see me highlight their views in future newsletters.

Good luck in 2023!

This post was originally posted on TKer.co

Sam Ro is the founder of TKer.co. Follow him on Twitter at @SamRo

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