The Dow Jones Industrial Average fell 0.22% to 33,147.25 on Friday, sliding 8.78% in 2022; the S&P 500 lost 0.25% at 3,839.50, crashing 19.44% in 2022; and the Nasdaq Composite dropped 0.11% to 10,466.48, tumbling 33.1% in 2022.
After experiencing the nightmare in 2022, the focus has shifted to the 2023 corporate earnings outlook, with growing concerns about the likelihood of a recession. Citi and Wells Fargo predict U.S. economy may enter a mild recession, JPMorgan, Morgan Stanley and BofA believe S&P 500 may have a U-turn.
Goldman Sachs (GS) recently joined a slew of global investment bankers while unveiling the 2023 forecasts.
In its latest analysis, the GS expects S&P 500 Future to average around 4,000 in 2023.
The US bank also states that S&P 500 EPS is still $224 in 2023 while stating, “The firm remains underweight the S&P 500 Industrials Sector despite its 19% rally since the start of the fourth quarter.”
JP Morgan Believes S&P 500 Will Reach 4,200 By Year-End in 2023
JP Morgan expects the global economy is projected to expand at a sluggish pace of around 1.6% in 2023 as financial conditions tighten, the winter aggravates China’s COVID policy and Europe’s natural gas problems persist, and it is not at imminent risk of sliding into recession, as the sharp decline in inflation helps promote growth, but a U.S. recession is likely before the end of 2024.
For U.S. stocks, the company thinks that in the first half of 2023, the S&P 500 is expected to re-test the lows of 2022, but a pivot from the Fed could drive an asset recovery later in the year, pushing the S&P 500 to 4,200 by year-end.
Morgan Stanley Predicts S&P May Slid to 3,000 Before Ending the Year at 3,900
Morgan Stanley expects that in the coming year, markets will continue to be driven by macro themes.
In 2023, it anticipates a transition from an environment with generally rising policy rates to one in which inflationary pressure recedes, rate increases end and global growth slows, with GDP growth in developed markets bottoming at 0.2% (annualized) in the third quarter of 2023.
Consequently, it expects rates curves to steepen, driving returns for bonds and other fixed income investments, and U.S. equity markets to sell off in the first quarter, reaching levels as low as 3,000 to 3,300 for the S&P 500 before ending the year about flat at 3,900.
Bank of America Sees Stocks Going Nowhere in 2023
BofA set a 2023 year-end price target of 4,000 on S&P 500, as annual earnings per share for the S&P 500 are seen to $200.
While BofA is bearish near term, the bank remains bullish over the long haul and sees the S&P 500 returning 8% annually over the next decade. The firm is advising investors to focus on the marathon and not the sprint.
The bank placed the odds of generating a positive return on the index if an investor holds it for a day at “just more than a coin flip,” or 54%, while owning the S&P 500 over the next 10 years puts the chances of making money at 94%.
Wells Fargo 2023 Outlook: A Year of Recession, Recovery, and Rebound
Wells Fargo thinks a recession and unwinding of inflationary shocks of the past 18 months could allow inflation to decline to under 3% on a year-over-year basis by year-end 2023.
A moderate recession in the first half of 2023 may lead to a contraction for the year as a whole, marked by -1.3% U.S. GDP (gross domestic product) growth.
Once investors begin to anticipate economic and earnings recovery, the S&P 500 Index is forecasted to gain into year-end. S&P 500 Index target range is 4,300 – 4,500 for year-end 2023.
Federal funds rate forecast of 3.50% – 3.75% anticipates multiple policy interest-rate reductions after rates reach a peak above 4.50% early in 2023.
Citi Expects S&P 500 to End 2023 at 3,900 Points and Its EPS Will Be $215
Its view is that multiples tend to expand coming out of recessions as EPS in the denominator continues to fall while the market begins pricing in recovery on the other side.
Part of this multiple expansion, however, has a rates connection. The monetary policy impulse to lower rates lifts multiples as the economy works its way out of the depths of recession.
It believes the eurozone and U.K. will enter a recession by the end of 2022. The U.S. stands to enter a recession by mid-2023.
HSBC Expects S&P 500 to End 2023 At 4,000 Points and Its EPS Will Be $225
The company believes that valuation headwinds will persist well into 2023, and most downside in the coming months will come from slowing profitability.
Deutsche Bank Thinks That Equity Bear Market Rally Will Stretch Into 2023, Dollar Weaker
It sees the S&P 500 at 4,500 in the first half, down more than 25% in Q3, and back to 4,500 by year-end 2023.
In its 2023 outlook, Deutsche said a recession was likely to take hold from mid-year and would also be felt in credit markets where U.S. high yield spreads should widen to 860 basis points by end-2023, and euro-denominated high yield spreads should reach 930 bps.