With 2022 drawing to a close, the S&P 500 has clawed its way out of bear market territory but remains down 16.83%.As we look ahead to 2023, here are 8 major investment banks’ forecasts that may help you know what the U.S. stock markets look like.
Deutsche Bank is the most optimistic one that believes the S&P 500 will reach 4,500 points, while Morgan Stanley, Citi, and UBS show the same target of 3,900 points on the S&P 500. Last but not least, BofA, Goldman Sachs and HSBC show the target of 4,000 points on the S&P 500.
BofA: Buy Chinese Stocks and Sell Big US Tech Brands
The chorus of strategists turning bullish on Chinese stocks is getting louder by the day, with Bank of America Corp.’s Michael Hartnett the latest to recommend the nation’s equities as a top buy for 2023.
China’s economic reopening is set to boost equities as households have excess savings, strategists led by Hartnett wrote in a note dated Nov. 22, adding that the ending of Covid restrictions boosted stocks in the US and other countries. They also recommended selling US tech stocks among their top 10 trades for 2023.
Moreover, they believe S&P 500 will end at 4,000 points in 2023, and the Fed’s terminal rate will be 5.25%.
Morgan Stanley: It Expects to Have an Upside for Bonds, Defensive Stocks and Emerging Markets in 2023
In an environment of slow growth, lower inflation and new monetary policies, the company expects 2023 to have an upside for bonds, defensive stocks and emerging markets. They forecast the S&P 500 ending next year roughly where it started, at around 3,900.
“Consensus earnings estimates are simply too high, to the point where we think companies will hoard labor and see operating margins compress in a very slow-growth economy,” says Wilson. To that end, investors should consider the higher-yielding parts of the equities market, including consumer staples, financials, healthcare and utilities.
Goldman Sachs: Stocks May Endure Less Pain but Also No Gain in 2023
“In 2023, we expect less pain but also no gain,” a team led by David Kostin wrote in the bank’s 2023 equity outlook report.
It estimates 2023 S&P 500 earnings per share will be unchanged at $224 and the index will end the year at 4,000.
It expects a 0.50% increase in the Fed's benchmark interest rate next month, followed by three more 25-basis-point hikes in February, March, and May to a terminal rate of 5.0%-5.25%.
HSBC: the Lows in Risk Assets Will Appear at the Start of 2023
HSBC anticipates that the lows in risk assets will appear at the start of 2023, with the chance of a US recession growing. But the bank also believes stocks could rally back in the second half of next year.
“As the Fed signals a pause or even an end to its rate hike cycle, this should bring some well-needed relief, lifting the S&P 500 to 4,000 by year-end 2023,” HSBC’s Kettner said.
Citi: A Gradual Shift in the Fed's Rate Policy During H1 2023 Provides Valuation Support to U.S. Equities
Citigroup trimmed its year-end target by a more modest 4% to 4,000 in 2022, and it expects the index to end 2023 at 3,900 points.
"A gradual shift in the Fed's rate policy during H1 2023 provides valuation support to U.S. equities," the brokerage said.
UBS: It Targets 3900 Points for the S&P 500 at the End of 2023
Economists forecast a US recession for Q2-Q4 2023, the setup for 2023 "is essentially a race between easing inflation and financial conditions versus the coming hit to growth+earnings."
In addition, UBS set a target of 4400 for the end of 2024 based on the 10% EPS growth expected and a slightly higher P/E as yields fall more.
Defensive sectors should prove relatively insulated from a weakening economy, while value stocks tend to perform well when inflation is high. More attractive opportunities to buy cyclical and growth stocks may emerge later in the year, as inflation slows and global growth picks up.
Deutsche Bank: Markets Will Recover By Year-End 2023 After the Fed's Rate Hikes
In the US, analysts see the S&P 500 rallying to 4,500 in the first half of next year, then selling off by more than 25% in the third quarter, before rebounding back to 4,500 by the end of 2023.
Deutsche Bank also sees earnings per share among S&P 500 companies falling to $195 in 2023 from $222 in 2022.
In an attempt to combat decades-high rampant inflation, the Fed will continue tightening and eventually send the economy into a full on recession next year.
Credit Suisse: It Expects the S&P 500 to 3850 Points in 2022 and 4,050 Points in 2023
Credit Suisse cut its target for the S&P 500 by about 10% to 3,850 points in 2022, citing the impact of rising interest rates and slowing economic growth on third-quarter earnings.
For the 2023 year-end, however, Credit Suisse expects a near 13% upside from current levels in the index and has set a target of 4,050 points.
"We expect a reversal of spreads and volatility, leading to 1-2x multiple points of rerating through year-end. By contrast, 2023 returns should be driven primarily by earnings growth," Credit Suisse analyst Jonathan Golub said.
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