5 Top Strategists Discuss Near-term Outlook for S&P 500 and US Equities

The S&P 500 had another rough week with the US benchmark stock index falling 5.2%. Consumer Staples was the best-performing sector (down 1.1%) while Consumer Discretionary was the worst-performing sector (-8.4%).

Here are comments from 5 strategists on what we can expect from the S&P 500 in the near term.

Goldman Sachs’ David Kostin (lowers S&P 500 price target to 4300 from 4700): “Although S&P 500 firms posted much better-than-expected 1Q EPS growth of 11%, investors have been mauled by a 18% near-bear market plunge since the index peaked on January 3rd. We boost our 2022 EPS growth forecast to +8% (from +5) and maintain our 2023 growth estimate of 6%. Our sales, margin, and EPS estimates remain below bottom-up consensus. We cut our year-end target to 4300 (from 4700) to reflect higher interest rates and slower economic growth than we previously assumed. Our new baseline forecast assumes no recession and implies the P/E ends the year unchanged at 17x. A recession would see the index fall by 11% to 3600 as the P/E drops to 15x. Focus on high vs. low margin growth stocks.”

Morgan Stanley’s Michael Wilson: “With valuations now more attractive, equity markets so oversold and rates potentially stabilizing below 3%, stocks appear to have begun another material bear market rally. After that, we remain confident that lower prices are still ahead. In S&P 500 terms we think that level is close to 3,400, which is where both valuation and technical support lie.”

Canaccord Genuity’s Javed Mirza: “A sharp short-term (1-2 week) counter-trend bounce is an opportunity to reduce exposure in risk assets. The weakening technical profiles of most cyclical sectors and the Market Cycle Model suggest further downside potential of 5 – 15% in equity markets. In our view, a move into bear market territory (-20%) by the bulk of the Goliaths [e.g. AAPL, AMZN, FB, GOOGL, NFLX, TSLA] would constitute an attractive long-term entry point, with the caveat that this is within the context of a secular bull market in equities.

UBS’ Keith Parker: “Although Fed tightening is a certainty, the growth outlook is highly uncertain. Our logit model suggests the equity market is pricing a 40% chance of a recession by year-end (85pctl). Indeed, we estimated <3800 as a level at which the S&P 500 is priced for an economic and earnings recession.”

BTIG’s Jonathan Krinsky: “We think a bounce towards 4,200 makes sense as we enter a summer chop, but ultimately think there is unfinished business down to 3,400-3,500 later this year consistent with the mid-term election cycle seasonal pattern.”

By Senad Karaahmetovic

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